Econ-100 Intro & Scarcity Review Q's

A family is currently paying $40 a month for basic phone service for two phone lines. A representative from another phone carrier calls the family to offer a service that will include basic phone through a cable connection that includes two phone numbers, call waiting, voice mail, and caller-ID for $52 a month. The relevant costs

for deciding whether to switch phone carriers are:

A. the total new costs, in this case, $52 a month.

B. the marginal costs, in this case, $12 a month.

C. the total old costs, in this case, $40 a month.

D. the difference between the total old costs and the marginal costs, in this case, $28 a month.

B. the marginal costs, in this case, $12 a month.

A family is currently paying $40 a month for basic phone service for two phone lines. A representative from another phone carrier calls the family to offer a service that will include basic phone through a cable connection that includes two phone numbers, call waiting, voice mail, and caller-ID for $52 a month. What additional information do we need to determine if the family should switch phone carriers?

A. We need to know the marginal benefits of call waiting, voice mail, and caller-ID.

B. We need to know how many calls the family gets per month.

C. We do not need any further information; the family should not switch phone carriers.

D. We do not need any further information; the family should switch phone carriers.

A. We need to know the marginal benefits of call waiting, voice mail, and caller-ID.

A family is currently paying $40 a month for basic phone service for two phone lines. A representative from another phone carrier calls the family to offer a service that will include basic phone through a cable connection that includes two phone numbers, call waiting, voice mail, and caller-ID for $52 a month. In the previous month, the family paid $20 to have a second phone line installed. This second phone line will no longer be necessary with the new service. How does this $20 enter into the decision?

A. We need to add the $20 to the current monthly fee of $40.

B. We need to add the $20 to the new monthly fee of $52.

C. We need to add the $20 to the marginal costs.

D. These $20 are sunk costs, they do not enter into the decision.

D. These $20 are sunk costs, they do not enter into the decision.

You win a free, nontransferable ticket to a Taylor Swift concert. Since the ticket is free, you decide to:

A. Definitely go to the concert because it implies no cost for you.

B. Definitely don’t go because you still have to pay to get to the concert. C. Go only if the net benefit of going to the concert is higher than the net benefit you would have received from any other activity available to you.

D. Go only if Prof. Gunter also goes to the concert.

C. Go only if the net benefit of going to the concert is higher than the net benefit you would have received from any other activity available to you.

You have purchased 5 premium apples for $15 from an unknown street vendor, who you will never see again. When you get home, you realize that they are not the top quality apples you expected as they are marginally rotten. You decide to eat the apples because you paid top dollar for these apples. What is wrong with this argumentation regarding your decision?

A. There is nothing wrong with the argumentation; you paid a lot of money, so you have to eat them.

C. You should always ask your mother before making any decision on what to eat.

D. You should always ask Prof. Gunter before making any decision on what to eat.

B. How much you paid for the apples is a sunk cost and therefore is irrelevant to the decision.

Scarcity exists because:

A. individuals cannot solve the three central coordination problems.

B. governments cannot solve the three central coordination problems.

C. the supply of goods is always less than the demand.

D. new wants continue to develop and resources available to meet them are limited.

D. new wants continue to develop and resources available to meet them are limited.

Note: Answer C is not correct as supply of some goods is sometimes above the demand; it is called excess supply or a surplus (which will be covered more in Chapter 4).

7. The marginal benefit from consuming another unit of a good:

A. must equal the marginal cost or the unit will not be consumed.

B. must be less than the marginal cost or the unit will not be consumed.

C. equals the increase in total benefits from consuming the unit.

D. equals the total benefit obtained from the consumption of all prior units.

C. equals the increase in total benefits from consuming the unit.

Note: Answer A is not correct because if the MB is higher than the MC, the unit will be consumed. If the MB =MC, we are actually in a kind of indifferent situation.

Sunk costs:

A. are essential parts of economic decisions.

B. are irrelevant to economic decisions.

C. should be considered, but only when marginal cost is less than marginal benefit.

D. should be considered only when there is no information about marginal cost and marginal

benefit.

B. are irrelevant to economic decisions.

You bought one share of McDonald’s stock for $10, one share of Coca-Cola for $15, and one share of Pepto-Bismol for $20. Currently, each stock is priced at $15. Assuming that there are no tax issues and that you cannot predict the future price of any of the stocks, if you needed $15, which stock would you sell? [Be careful, this is a tricky question.]

A. McDonalds.

B. Coca-Cola.

C. Pepto-Bismol.

D. Any one of them.

D. Any one of them.

Note: This is a tough question as you could come up with all kind of arguments for why you may want to sell any of the three stocks. But if you analyze the situation carefully, you will / should realize that since you cannot predict the future price of any of the stocks, the prices you bought them for are irrelevant (like sunk costs).

When your wages rise, the:

A. opportunity cost of an hour of work decreases.

B. opportunity cost of an hour of leisure stays the same.

C. cost of working increases.

D. opportunity cost of an hour of leisure increases.

D. opportunity cost of an hour of leisure increases.

Note: This is potentially not straight forward for some of you; but if you think about it, if you take an hour off with having a higher wage, you lose more than if taking an hour off with a low wage.