Econ_002_Exam___1-1 - Econ 002 Exam # 1 Student: _ 1....

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Econ 002 Exam # 1 Student: ___________________________________________________________________________ 1. Economics is best defined as the study of A. prices and quantities. B. inflation and interest rates. C. how people make choices under the conditions of scarcity and the results of the choices. D. graph drawing. E. wages and incomes. 2. The cost-benefit principle indicates that an action should be taken A. if the total benefits exceed the total costs. B. based on flipping a coin or speaking with a psychic. C. if the average benefits exceed the average costs. D. if the net benefit (benefit minus cost) is zero. E. if the extra benefit is greater than or equal to the extra costs. 3. The opportunity cost of an activity is the value of A. an alternative forgone. B. the next-best alternative forgone. C. the least-best alternative forgone. D. the difference between the chosen activity and the next-best alternative forgone. E. the alternative one would have preferred to choose. 4. The cost that we can not avoid whether or not an action is taken, is called A. opportunity cost B. average cost C. sunk cost D. marginal cost E. total cost of the action 1
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5. The marginal benefit of an activity is the A. same as the total benefits of the activity. B. total benefit divided by the level of the activity. C. change in the activity divided by the change in benefits. D. extra benefit associated with an extra unit of the activity. E. total benefit associated with an extra unit of the activity . 6. Tony notes that an electronics store is offering a flat $20 off all prices in the store. Tony reasons that if he wants to buy something with a price of $50 that it is a good offer, but if he wants to buy something with a price of $500 it is not a good offer. This is an example of A. inconsistent reasoning; saving $20 is saving $20. B. the proper application of the cost-benefit principle. C. rational choice because in the first case he saves 40% and in the second case he saves 4%. D. marginal cost equals marginal benefit thinking. E. opportunity costs. 7. A cost or benefit that does not matter in making decisions is A. marginal costs B. marginal benefits C. opportunity costs D. average cost E. None of the above 8. Catherine and Nancy both own homes with similar size lawns. Catherine mows her own lawn while Nancy hires someone to mow hers. Assume both women are rational decision makers. Which is the best explanation of the different decisions they make? A. The opportunity cost of Nancy's time is higher than her cost to hire someone to mow the lawn. B. Nancy can get her lawn mowed for less than Catherine. C. Nancy doesn't own a lawnmower. D. Nancy earns more than Catherine does. E. Catherine's overall level of economic benefit must be lower.
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9. One thing that distinguishes normative principles from positive principles is that A. normative principles are pessimistic and positive principles are optimistic. B. normative principles reflect the social norms of the community, and positive principles reflect universal
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This note was uploaded on 03/30/2008 for the course ECON 002 taught by Professor Mcleod,markpehlivan,ayseozg during the Summer '08 term at Pennsylvania State University, University Park.

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Econ_002_Exam___1-1 - Econ 002 Exam # 1 Student: _ 1....

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