Ch1 Core Principle Flashcards
What principle is illustrated by an entrepreneur’s decision about how much to produce being affected by other decisions?
interdependence
This principle reflects how different decisions are interconnected.
What is the term for the cost of choosing one option over another?
opportunity cost
This refers to the potential benefits missed when one alternative is chosen over another.
What principle involves analyzing the additional benefits of an action compared to its additional costs?
marginal
This principle focuses on the incremental changes in decision-making.
What principle involves weighing the total costs against the total benefits of a decision?
cost-benefit
This principle helps in evaluating the overall value of a decision.
Since there are a limited number of hours in a day, an entrepreneur’s decision about how much to produce may be affected by other decisions, such as the number of workers to employ. These different decisions that an entrepreneur has to take are an example of the _____ principle.
opportunity cost
interdependence
marginal
cost-benefit
interdependence
key words “may be affected by other decision”
Which of these would prevent someone from falling for the framing effect?
the opportunity cost principle
the interdependence principle
the marginal principle
the cost-benefit principle
cost-benefit principle
- an action should only be taken if its benefits outweigh its costs. doest matter how its presented (framing)
Which of the following is NOT true of opportunity costs?
Not all out-of-pocket costs are real opportunity costs.
Some out-of-pocket costs are opportunity costs.
Opportunity costs do not always involve out-of-pocket costs.
All nonfinancial costs are opportunity costs.
All nonfinancial costs are opportunity costs.
opportunity costs can include non-financial costs like time or lost enjoyment, not all non-financial costs are considered opportunity costs. Opportunity costs specifically refer to the value of the next best alternative foregone when making a decision. A non-financial cost might not represent the best alternative foregone, and therefore, wouldn’t always be an opportunity cost.
Using the rational rule allows business owners to experiment their way to the point where:
economic profits are maximized.
total benefits are maximized.
total costs are minimized.
marginal costs are minimized.
economic profits are maximized.
rational rule:
you should only buy it if the additional satisfaction you get from the object (marginal benefit) is greater than the additional cost of buying it (marginal cost).
When someone seeks to be aware of how a decision is affected by other decisions, they are taking into account the _____ principle.
marginal
cost-benefit
opportunity cost
interdependence
interdependence
Matthew has been diagnosed with cancer and doctors estimate that he has roughly 5 months to live. From an economic standpoint, which BEST explains why Matthew might be more likely than a healthy person to take a risky experimental drug?
His opportunity cost is higher than that of healthy people.
His sunk costs are more than those of healthy people.
His sunk costs are fewer than those of healthy people.
His opportunity cost is lower than that of healthy people.
His opportunity cost is lower than that of healthy people.
When you follow the rational rule, you can maximize:
economic surplus.
marginal benefit.
marginal cost.
total benefit.
economic surplus
- ratinal rule: continue an until marginal benefit = marginal cost.
This equality maximizes economic surplus, which is the difference between total benefit and total cost.
You are willing to pay $5 for a medium sized bubble tea. According to the cost-benefit principle, when should you buy bubble tea?
when the cost is greater than $5
when the cost is less than $5
when the cost is less than or equal to $5
when the cost is greater than or equal to $5
when the cost is less than or equal to $5
According to the rational rule, if something is worth doing, you should keep doing it until:
your marginal benefits are maximized.
your sunk costs can be ignored.
your total benefit equals your total cost.
your marginal benefit equals your marginal cost.
your marginal benefit equals your marginal cost.
You are thinking about quitting your job to go back to school. Which of these is not associated with an opportunity cost?
Costs of going to school vs. Costs of the next best alternative
Tuition costs $50,000 vs. You won’t pay tuition
You quit your job vs. You earn $60,000 from your job
Books $600 vs. Transportation costs $3,000
8 hours per day studying vs. 8 hours per day working
time spent
books
tuition
income
time spent
Raul is considering going to college for another year. He is creating a chart of the costs and benefits of this decision. He knows that tuition will cost $10,000, but he has a scholarship for $8,500. Should he decide to attend the college?
How much should he put for tuition in the cost column of his chart?
Costs Benefits
??? Tuition $50,000 Raul’s willingness to pay for a degree
$25,000 Room and board $20,000 less on rent and groceries
9 hours per day studying 8 hours less per day working
$30,000 forgone income
Yes, $1,500.
Yes, $8,500.
No, $10,000.
No, $18,500.
A business owner is thinking about how many workers she should hire. She also thinks about whether she should purchase a larger building for these workers. Taking into account both of these decisions together is the essence of the _____ principle.
marginal
opportunity cost
cost-benefit
interdependence
interdependence
“taking into account both of these decisions”
Which of these BEST describes what people should base their decisions on?
how the choice is framed
nonfinancial costs only
financial costs only
opportunity costs
opportunity costs
Amancio is going into his fourth year of school when he is offered a prestigious position at a software company. Instead of applying the opportunity cost principle to see if he should quit school and take the job, he decides to stay in school, because he has already spent so much time and money on furthering his education. Amancio’s hasty decision has been negatively affected by:
sunk costs.
the framing effect.
the someone else’s shoes technique.
scarcity.
sunk costs.
” already spent so much time and money into furthering his education”
The _____ principle says that decisions about quantities are BEST made incrementally.
cost-benefit
opportunity cost
marginal
interdependence
marginal
- marginal principle is a method of analyzing the additional benefits of an activity compared to the additional costs.
_____ cost is the extra cost associated with one extra unit.
Out-of-pocket
Sunk
Opportunity
Marginal
Marginal
Your willingness to pay for a pair of jeans is $50. According to the cost-benefit principle, when should you avoid buying a pair of jeans and instead opt to keep your money?
when the price of the jeans is less than $50
when the price of the jeans is equal to or less than $50
when the price of the jeans is equal to $50
when the price of the jeans exceeds $50
when the price of the jeans exceeds $50
Which two values should a business owner compare before deciding to hire one more worker?
marginal cost and marginal benefit
sunk cost and willingness to pay
opportunity cost and total revenue
opportunity cost and economic surplus
marginal cost and marginal benefit
Nasser owns a business that produces t-shirts, but he is struggling with the dilemma of how many shirts to produce, so he begins by asking himself if he should produce one more shirt. Which economic principle is exemplified by this situation?
the cost-benefit principle
the marginal principle
the opportunity cost principle
the interdependence principle
