A) His decision is rational if Adam's marginal benefit of spending a day skiing is greater than his marginal cost.
B) The $80 price of skiing is not an opportunity cost and so did not affect Adam's decision.
C) He loses a total of $120 per day, so his decision is irrational.
D) Adam's lost $40 per day in wages is not an opportunity cost and so did not affect his decision.
E) Adam is definitely making a decision that is in the social interest.
Answer: A
Topic: Making rational choices
Skill: Level 1: Definition
Section: Checkpoint 1.2
Status: Old
AACSB: Reflective thinking
35) The decision to go to graduate school is a rational one for a college student if the
A) cost is not too great.
B) marginal cost exceeds the marginal benefit of graduate school.
C) marginal benefit of graduate school exceeds the marginal cost.
D) opportunity cost of graduate school equals zero.
E) student carefully compared the social benefits of this decision.
Answer: C
Topic: Making rational choices
Skill: Level 1: Definition
Section: Checkpoint 1.2
Status: Old
AACSB: Reflective thinking
36) An incentive is
A) an inducement to take a particular action.
B) the marginal cost of some course of action.
C) the marginal benefit of some course of action.
D) the net gain of some course of action.
E) a constraint that society imposes on those who make self-interested choices.
Answer: A
Topic: Incentives
Skill: Level 1: Definition
Section: Checkpoint 1.2
Status: Old
AACSB: Reflective thinking
37) An incentive is
A) a reward or a penalty that encourages or discourages an action.
B) when people make rational choices by comparing costs and benefits.
C) what you must give up to get something.
D) a choice is made on the margin.
E) a good or service that satisfies wants.
Answer: A
Topic: Incentives
Skill: Level 1: Definition
Section: Checkpoint 1.2
Status: Old
AACSB: Reflective thinking
38) A change in a marginal benefit or cost will
A) increase consumption.
B) decrease production.
C) cause an individual to make a rational choice.
D) increase sunk costs.
E) change incentives.
Answer: E
Topic: Incentives
Skill: Level 2: Using definitions
Section: Checkpoint 1.2
Status: Old
AACSB: Reflective thinking
39) Proponents of cuts in income tax rates argue that when income tax rates are cut, workers have an incentive to increase their work hours. This argument is based on the assumption that
A) workers are irrational.
B) workers make decisions based on the marginal benefit of each hour worked compared to the marginal cost of work.
C) the opportunity cost of working is negative.
D) the marginal cost of each additional work hour is not important to most workers.
E) workers make decisions based on the social interest.
Answer: B
Topic: Incentives
Skill: Level 2: Using definitions
Section: Checkpoint 1.2
Status: Old
AACSB: Reflective thinking
40) Your economics professor offers 10 points extra credit if you attend a review session before your next exam. This extra credit is an example of
A) a decrease in marginal benefit to attend the review session.
B) an increase in marginal cost to attend the review session.
C) a rational choice.
D) an incentive to attend the review session.
E) None of the above answers is correct.
Answer: D
Topic: Incentives
Skill: Level 2: Using definitions
Section: Checkpoint 1.2
Status: Old
AACSB: Reflective thinking
41) If the marginal benefit of getting a college degree rises, rational people will
A) attend college in greater numbers.
B) drop out of college.
C) not change their behavior.
D) require that college get easier.
E) raise the marginal cost of attending college.
Answer: A
Topic: Incentives
Skill: Level 2: Using definitions
Section: Checkpoint 1.2
Status: Old
AACSB: Reflective thinking
42) Correlation means
A) "after this, therefore because of this."
B) other things remaining the same.
C) a natural experiment has been conducted.
D) the tendency for the values of two variables to move in a predictable and related way.
E) "on the margin."
Answer: D
Topic: Correlation
Skill: Level 1: Definition
Section: Checkpoint 1.2
Status: Old
AACSB: Reflective thinking