ECO 304K_Fall 2009_Midterm1_Key

ECO 304K_Fall 2009_Midterm1_Key - ECO 304K Fall 2009...

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ECO 304K Fall 2009 Midterm 1 Instructor: Urmee Khan Time Available: 50 Minutes Total Points: 70 NAME ______________________________________________________________
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1. The logical implication of the scarcity principle is that A. one will never be satisfied with what one has. B. as wealth increases, making tradeoffs becomes less necessary. C. as wealth decreases, making tradeoffs becomes less necessary. D. choices must be made. 2. Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. This is A. not an economic problem, because neither one costs money. B. not an economic problem, because it's an hour that is wasted no matter what Chris does. C. an economic problem because the tuition Chris pays covers both the gym and the library. D. an economic problem, because the one-hour time limit means Chris must make a choice. 3. The cost-benefit principle indicates that an action should be taken A. if the total benefits exceed the total costs. B. if the average benefits exceed the average costs. C. if the net benefit (benefit minus cost) is zero. D. if the extra benefit is greater than or equal to the extra costs. 4. The scarcity principle indicates that __________ and the cost-benefit principle indicates __________. A. choices must be made; how to make the choices B. choices must be made; the costs can never outweigh the benefits of the choices C. rare goods are expensive; the costs should outweigh the benefits of the choices D. rare goods are expensive; the costs can never outweigh the benefits of the choices Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. 5. Larry maximizes his surplus by attending A. Elite U, because $60,000 is greater than the benefit at the other schools. B. State College, because the difference between the benefit and cost is greatest there. C. NoName U, because Larry has a full scholarship there. D. Elite U, because the opportunity costs of attending Elite U are the lowest.
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6. Jen spends her afternoon at the beach, paying $1 to rent a beach umbrella and $11 for food and drinks rather than spending an equal amount of money to go to a movie. The opportunity cost of going to the beach is: A. the $12 she spent on the umbrella, food and drinks. B.
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ECO 304K_Fall 2009_Midterm1_Key - ECO 304K Fall 2009...

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