ECO 108: Introduction to Economics
Problem Set 2
Professor: Eva Carceles-Poveda
1. According to the cost-benefit principle,
A. the lowest cost activity usually gives the lowest benefit.
B. a person should always choose the activity with the lowest cost.
C. a person should always choose the activity with the greatest benefit.
D. the extra costs and benefits of an activity are more important considerations than the total
costs and benefits.
2. Amy is thinking about going to the movies tonight. A ticket costs $7 and she will have to
cancel her dog-sitting job that pays $30. The cost of seeing the movie is
D. $37 minus the benefit of seeing the movie.
3. If one fails to account for opportunity costs in decision making, then applying the cost-
benefit rule will be flawed because
A. the benefits will be overstated.
B. the costs will be understated.
C. the benefits will be understated.
D. the costs will be overstated.
4. Pat earns $25,000 per year and has two pre-school children. Childcare for the children costs
$12,000 per year. Pat has decided to stay home and take care of the children. Pat must
A. value spending time with the children by more than $25,000.
B. value spending time with the children by more than $12,000.
C. value spending time with the children by more than $13,000.