Chapter 1
1. You have eaten two bowls of ice cream at Sundae School Ice Cream store. You consider eating a
third. As a rational consumer you should make your choice by comparing
a. the benefits from eating all three bowls of ice cream to how much three bowls of ice cream
costs.
b. the benefits from eating all three bowls of ice cream to how much one more bowl of ice cream
costs.
c. the benefits from eating one more bowl of ice cream to how much three bowls of ice cream
costs.
d. the benefits from eating one more bowl of ice cream to how much one more bowl of ice cream
costs.
ANSWER: d
2. Efficiency
a. and equality both refer to how much a society can produce with its resources.
b. and equality both refer to how fairly the benefits from using resources are distributed between
members of a society.
c. refers to how much a society can produce with its resources. Equality refers to how evenly the
benefits from using resources are distributed among members of society.
d. refers to how evenly the benefits from using resources are distributed between members of
society. Equality refers to how much a society can produce with its resources
ANSWER: c
3. In economics, the cost of something is
a. the dollar amount of obtaining it.
b. always measured in units of time given up to get it.
c. what you give up to get it.
d. often impossible to quantify, even in principle.
ANSWER: c
4. Suppose that you have received $300 as a birthday gift. You can spend it today or you can put the
money in a bank account for a year and earn 5 percent interest. The opportunity cost of spending the
money today, in terms of what you could have after one year, is
a. $0.
b. $15.
c. $305.
d. $315.
, ANSWER: d
5. Hamid spends an hour studying instead of watching TV with his friends. The opportunity cost to him
of studying is
a) the improvement in his grades from studying for the hour.
b) the improvement in his grades from studying minus the enjoyment of watching TV.
c) the enjoyment he would have received if he had watched TV with his friends.
d) zero. Since Hamid chose to study rather than to watch TV, the value of studying must have
been greater to him than the value of watching TV.
ANSWER: c
6. For which of the following individuals would the opportunity cost of going to college be highest?
a. a promising young mathematician who will command a high salary once she earns her college
degree
b. a student with average grades who has never held a job
c. a famous, highly-paid actor who wants to take time away from show business to finish college and
earn a degree
d. a student who is the best player on his college basketball team, but who lacks the skills necessary
to play professional basketball
ANSWER: c
7. Consider Mandy’s decision to go to college. If she goes to college, she will spend $20,000 on tuition,
$10,000 on room and board, and $2,000 on books. If she does not go to college, she will earn $18,000
working in a store and spend $8,000 on room and board. Mandy’s cost of going to college is
a. $32,000.
b. $42,000.
c. $50,000.
d. $58,000.
ANSWER: b
8. It costs a meat-processing company $50,000 to produce 5,000 pounds of steak. The company’s cost
will be $50,009 if it produces an additional pound of steak. If the company produces 5,001 pounds of
steak then
a. its average cost is greater than its marginal cost.
b. its average cost and its marginal cost are equal.
c. its average cost is less than its marginal cost.
d. there is insufficient information to compute average and marginal costs.
ANSWER: a
9. Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on
, a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay
$300, the airline should
a. sell the ticket because the marginal benefit exceeds the marginal cost.
b. sell the ticket because the marginal benefit exceeds the average cost.
c. not sell the ticket because the marginal benefit is less than the marginal
cost.
d. not sell the ticket because the marginal benefit is less than the average
cost.
ANSWER: a
10. Katie is planning to sell her house, and she is considering making two upgrades to the house before
listing it for sale. Replacing the carpeting will cost her $2,500 and replacing the roof will cost her $9,000.
Katie expects the new carpeting to increase the value of her house by $3,000 and the new roof to increase
the value of her house by $7,000.
a. She should make both improvements to her house.
b. She should replace the carpeting but not replace the roof.
c. She should replace the roof but not replace the carpeting.
d. She should not make either improvement to her house.
ANSWER: b
11. Acme Home Builders, Inc., has built 24 houses so far this year at a total cost to the company of $4.80
million. If the company builds a 25th house, its total cost will increase to $5.05 million. Which of the
following statements is correct?
a. For the first 24 houses, the average cost per house was $205,000.
b. The marginal cost of the 25th house, if it is built, will equal $250,000.
c. If the company can sell the 25th house for at least $202,000, then it should build it.
d. All of the above are correct.
ANSWER: b
12. Suppose that you have received $300 as a birthday gift. You can spend it today or you can put the
money in a bank account for a year and earn 5 percent interest. The opportunity cost of spending the
money today, in terms of what you could have after one year, is
a. $0.
b. $15.
c. $305.
d. $315.
ANSWER: d
13. Which of the following is not an example of the opportunity cost of going to school?
1. You have eaten two bowls of ice cream at Sundae School Ice Cream store. You consider eating a
third. As a rational consumer you should make your choice by comparing
a. the benefits from eating all three bowls of ice cream to how much three bowls of ice cream
costs.
b. the benefits from eating all three bowls of ice cream to how much one more bowl of ice cream
costs.
c. the benefits from eating one more bowl of ice cream to how much three bowls of ice cream
costs.
d. the benefits from eating one more bowl of ice cream to how much one more bowl of ice cream
costs.
ANSWER: d
2. Efficiency
a. and equality both refer to how much a society can produce with its resources.
b. and equality both refer to how fairly the benefits from using resources are distributed between
members of a society.
c. refers to how much a society can produce with its resources. Equality refers to how evenly the
benefits from using resources are distributed among members of society.
d. refers to how evenly the benefits from using resources are distributed between members of
society. Equality refers to how much a society can produce with its resources
ANSWER: c
3. In economics, the cost of something is
a. the dollar amount of obtaining it.
b. always measured in units of time given up to get it.
c. what you give up to get it.
d. often impossible to quantify, even in principle.
ANSWER: c
4. Suppose that you have received $300 as a birthday gift. You can spend it today or you can put the
money in a bank account for a year and earn 5 percent interest. The opportunity cost of spending the
money today, in terms of what you could have after one year, is
a. $0.
b. $15.
c. $305.
d. $315.
, ANSWER: d
5. Hamid spends an hour studying instead of watching TV with his friends. The opportunity cost to him
of studying is
a) the improvement in his grades from studying for the hour.
b) the improvement in his grades from studying minus the enjoyment of watching TV.
c) the enjoyment he would have received if he had watched TV with his friends.
d) zero. Since Hamid chose to study rather than to watch TV, the value of studying must have
been greater to him than the value of watching TV.
ANSWER: c
6. For which of the following individuals would the opportunity cost of going to college be highest?
a. a promising young mathematician who will command a high salary once she earns her college
degree
b. a student with average grades who has never held a job
c. a famous, highly-paid actor who wants to take time away from show business to finish college and
earn a degree
d. a student who is the best player on his college basketball team, but who lacks the skills necessary
to play professional basketball
ANSWER: c
7. Consider Mandy’s decision to go to college. If she goes to college, she will spend $20,000 on tuition,
$10,000 on room and board, and $2,000 on books. If she does not go to college, she will earn $18,000
working in a store and spend $8,000 on room and board. Mandy’s cost of going to college is
a. $32,000.
b. $42,000.
c. $50,000.
d. $58,000.
ANSWER: b
8. It costs a meat-processing company $50,000 to produce 5,000 pounds of steak. The company’s cost
will be $50,009 if it produces an additional pound of steak. If the company produces 5,001 pounds of
steak then
a. its average cost is greater than its marginal cost.
b. its average cost and its marginal cost are equal.
c. its average cost is less than its marginal cost.
d. there is insufficient information to compute average and marginal costs.
ANSWER: a
9. Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on
, a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay
$300, the airline should
a. sell the ticket because the marginal benefit exceeds the marginal cost.
b. sell the ticket because the marginal benefit exceeds the average cost.
c. not sell the ticket because the marginal benefit is less than the marginal
cost.
d. not sell the ticket because the marginal benefit is less than the average
cost.
ANSWER: a
10. Katie is planning to sell her house, and she is considering making two upgrades to the house before
listing it for sale. Replacing the carpeting will cost her $2,500 and replacing the roof will cost her $9,000.
Katie expects the new carpeting to increase the value of her house by $3,000 and the new roof to increase
the value of her house by $7,000.
a. She should make both improvements to her house.
b. She should replace the carpeting but not replace the roof.
c. She should replace the roof but not replace the carpeting.
d. She should not make either improvement to her house.
ANSWER: b
11. Acme Home Builders, Inc., has built 24 houses so far this year at a total cost to the company of $4.80
million. If the company builds a 25th house, its total cost will increase to $5.05 million. Which of the
following statements is correct?
a. For the first 24 houses, the average cost per house was $205,000.
b. The marginal cost of the 25th house, if it is built, will equal $250,000.
c. If the company can sell the 25th house for at least $202,000, then it should build it.
d. All of the above are correct.
ANSWER: b
12. Suppose that you have received $300 as a birthday gift. You can spend it today or you can put the
money in a bank account for a year and earn 5 percent interest. The opportunity cost of spending the
money today, in terms of what you could have after one year, is
a. $0.
b. $15.
c. $305.
d. $315.
ANSWER: d
13. Which of the following is not an example of the opportunity cost of going to school?
