Question 1

Suppose you are deciding whether to spend your evening studying for an exam or going out with friends. According to the economic principle of opportunity cost, what should you consider most in making your decision?

Accepted Answer

The enjoyment you expect from studying compared to the enjoyment from going out

Question 2

A student is trying to decide how many hours to work per week. If the wage rate is $20/hour and the student values the 10th hour of leisure at $18, what should the student do according to marginal analysis?

Accepted Answer

Work more hours because the wage is higher than the value of leisure

Question 3

Which of the following best describes the concept of 'shadow price' as discussed in the study materials?

Accepted Answer

The implicit value of a non-monetary resource, such as an hour of sleep

Question 4

You paid $40 for a concert ticket. After 20 minutes, you realize you are not enjoying the concert. According to economic reasoning, what should matter most in deciding whether to stay or leave?

Accepted Answer

The enjoyment you expect from staying compared to enjoyment from playing video games

Question 5

Which of the following is an example of optimization in differences?

Accepted Answer

Comparing the marginal benefit and marginal cost of one more unit of an activity

Question 6

Suppose the total benefit and total cost of dining out are given by $TB = 150$ and $TC = 60$ for 3 visits per week. What is the net benefit?

Accepted Answer

$TB - TC = 90$

Question 7

In the context of equilibrium, which statement is most accurate?

Accepted Answer

In equilibrium, everyone is optimizing and no one can benefit by changing their behavior.

Question 8

Why do economists care about equilibrium rather than disequilibrium?

Accepted Answer

Because in disequilibrium, people will change their behavior until equilibrium is reached

Question 9

Which of the following best explains why switching lanes in a traffic jam does not necessarily help you get to your destination faster, according to economic reasoning?

Accepted Answer

In equilibrium, both lanes should move at the same average speed.

Question 10

A study finds that people who eat more ice cream are more likely to drown. What is the most likely explanation for this correlation?

Accepted Answer

There is an omitted variable, such as hot weather, that causes both.

Question 11

If the marginal net benefit of the 5th visit to a restaurant is negative, what does optimization in differences suggest you should do?

Accepted Answer

Decrease the number of visits

Question 12

Which of the following is a potential problem when comparing the average earnings of college graduates to high school graduates to estimate the return to college?

Accepted Answer

Selection bias due to differences in background and ability

Question 13

Which method can help economists isolate the causal effect of college education on earnings?

Accepted Answer

Controlling for observable variables such as GPA and parental income

Question 14

Which of the following is NOT a valid reason why correlation does not imply causation?

Accepted Answer

Correlation always means causation

Question 15

Suppose you are analyzing the effect of a new government policy on high school graduation rates. Which step is NOT part of the economic approach in practice?

Accepted Answer

Make predictions without testing them with data

Question 16

If the opportunity cost of your time is $15/hour and you spend 2 hours on Facebook, what is the minimum economic cost of your Facebook usage?

Accepted Answer

$30

Question 17

Which of the following best describes the scientific method as used by economists?

Accepted Answer

Developing theoretical models and testing predictions with data

Question 18

Which of the following is an example of a cause-and-effect question in economics?

Accepted Answer

Does increasing government spending on early childhood education increase graduation rates?

Question 19

If you want to estimate the true effect of college on earnings, which statistical tool could you use to address selection bias?

Accepted Answer

Instrumental variables

Question 20

Which of the following statements about equilibrium is correct?

Accepted Answer

In equilibrium, no one can be made better off without making someone else worse off.

Sunk Costs and Marginal Decision-Making in Microeconomics

Study Guide - Practice Questions

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