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All rational decision making involves a balancing of the ______ and _______ of the decision.
When an individual makes a purchase or takes an action, he or she receives satisfaction, or ________. The cost of a purchase or an action can be measured by the value of the alternative forgone to make the purchase or take the action, or by its _______ cost. Opportunity cose for an individual can be measured in terms of forgone _________, or satisfaction.
The satisfaction from consuming a particular number of units of a good, service, or activity is _______ benefit or utility. The change in total satisfaction from consuming an additional unit of a good, service, or activity is ________ benefit or utility.
If the total utility from consuming five units of an item is 300 points, the total utility from consuming six unit is 320 pts., and the total utility from consuming 7 units is 330 pts., then the marginal utility of the sixth unit consumed is _____ pts. and the marginal utility of the seventh unit consumed is ______ points.
The Law of Diminishing Marginal Utility states that, as additional units of good, service, or activity are consumed, a point is eventually reached where each additional unit consumed adds ______ to the total utility, or has a _______ marginal utility, than the unit consumed just before it.
The cost of consuming a specified number of units of a good service, or activity is ____ cost. The change in total cost from consuming one more unit of good, service, or activity is ______ cost.
If the marginal cost of the first unit of an activity is 10 utility points, the marginal cost of the second unit is 30 utility points, the marginal cost of the third unit is 60 utility points, and the total cost of no units of the activity is zero, then the total cost of 1 unit of the activity is _____ utility points, and the total cost of 2 units of the activity is ______ utility points, and the total cost of three units is ______ utility points.
The objective of making a purchase or taking an action is too maximize ______ _______, which is total benefit minus total _______.
There are two net benefit maximization rules. Net benefit is maximized where total _____ exceeds total ______ by the greatest amount. Net benefit is also maximized where marginal benefit _____ marginal cost.
When marginal benefits is greater than marginal cost, net benefit ______; when marginal benefit is less than marginal cost, net benefit ________.
Graphically, net benefit is positive as long as the total _____ curve is above the total _______ curve. Also, the vertical distance by which the toal benefit curve exceeds the total cost curve is greatest at the point where the marginal benefit curve ______ the marginal cosst curve.
- benefit; cost
- equals (crosses)
To maximize its profit, a business evaluates the _____ from the sale of its product and the ______ of producing and selling the product at various levels of output.
The dollar payments made by a business to outsiders who provide land, labor, and capital are _____ costs. The opportunity costs to a business owner from using his or her own resources in the business rather than in some other way are ____ costs, which must be recovered by the owner(s) for the business to _______. The return necessary to cover these implicit costs is called _____ profit.
In economics, the total cost of operating a business is equal to both _____ and _______ costs, or includes _________ profit.
Profit greater than normal profit is called ________, or ________, profit. If total profit earned is $50,000 and normal profit is $30,000, economic profit is ________.
The total amount received from selling a particular number of units of a firm's product is total ______. The change in total revenue when one more unit of a firm's product is demanded is _________ __________. Total revenue equals ______times the quantity demanded.
- marginal revenue; price
If the total revenue from selling four units of a product was $1,000, and the total revenue from five units was $1,150, the marginal revenue from the fifth unit would be _________.
If the total revenue from selling ten units of a product was $2,000, and the marginal revenue from the 11th unit was $25, the total revenue from the 11th unit would be ___.
The cost of producing a particular number of units of a product is ______ _____; the change in total cost from producing one more unit of a product is ______ _____.
The primary economic objective of a business is to maximize _______, which is equal to total revenue minus total _____.
There are two profit-maximizing rules. A firm will maximize its profit by operating where total revenue _____ total costs by the greatest amount. Profit is also maximized by operating where marginal revenue ____ marginal cost.
If marginal revenue is greater than marginal cost, profit ________; if marignal revenue is less than marginal cost, profit ______.
Graphically, a firm is maximizing its profit by operating where the _____ _______ curve exceeds the _____ _____ curve by the greatest amount, or where the marginal revenue curve ______ the marginal cost curve.
- total revenue
- total cost
- equals (crosses)
The effect of an action on another person or thing that is not aprimary party to the action is called a(n) ___________. As a resultof this effect, the level of activity that maximizes private net benefitmight not maximize ________ net benefit.
Air pollution is an example of a __________ externality, which isa ___________ to a nonprimary party to an action. The reduction inrobberies in an area because of a small but active neighborhoodwatch group is an example of a __________ externality, which is a__________ to a nonprimary party to an action.
The private benefits from an action plus any positive externalitiesfrom the action equal the __________ benefits of the action. Theprivate costs of an action plus any negative externalities resultingfrom the action equal the ____________ costs of the action. Thesocial benefits minus the social costs of an action equal society's________ ________ from the action.
If there are negative externalities associated with an activity, theamount of the activity that maximizes society's net benefit is________ than the amount that maximizes private net benefit. If anactivity creates positive externalities, the amount of the activity thatmaximizes society's net benefit is __________ than the amount thatmaximizes private net benefit.
If the activity given in Figure 11.1 had negative externalities, the__________ social cost curve would be to the ___________ of theprivate cost curve, and the best activity level for society would be________ than activity level N in the figure. If the activity given in Figure 11.1 had positive externalities, the ___________ social benefit curve would be to the ________ of the ________ marginal benefit curve, and the best activity level for society would be__________ than activity level N in the figure.
- marginal; left
- right; positive
Society's net benefit from an action is maximized at the activitylevel where total ___________ __________ exceeds total___________ ___________ by the greatest amount, or where__________ social _________ equals ________ social ________.
- social benefit
- social cost
- marginal; benefit;
- marginal; cost
Many decisions in the U.S. economy are made collectively, or asa __________. Collective decision making occurs mainly at thegovernment level, and individuals participate in these decisionsthrough the __________ mechanism.
The study of the economic motives and attitudes of voters andpublic officials in making collective decisions is called ____________________. The basic idea behind public choice is that individualstry to __________ their own well-being when making __________decisions.
- public choice
In making collective decisions, as in making individualdecisions, people weigh the _________ and __________ of theirchoices. For example, some people do not seek information about acandidate or an issue before an election because the perceived_________ of acquiring the information is greater than theperceived __________. These people choose to be __________________.
- costs; benefits
- benefits; rationally
Persons who share and promote a common position on an issueare a ________ ________ group
The cost of a purchase or action measured in terms of its forgone alternative is its:
a. sunk cost.
b. money cost.
c. forgone cost.
d. opportunity cost.
Marginal utility and total utility are, respectively:
a. the satisfaction from the least-liked good consumed, and the satisfaction from all thegoods consumed.
b. the satisfaction one person gets, and the satisfaction all people get from consuming aparticular amount of a good.
c. the satisfaction from consuming one type of good, and the satisfaction fromconsuming several different types of goods.
d. the change in total satisfaction from consuming one more unit of a good, and the totalsatisfaction from consuming a particular amount of a good.
The total utility from consuming three units of an item is 300 utility points and themarginal utility of the fourth unit of the item is 150 utility points. The total utility fromconsuming five units of the item is:
a. 150 utility points.
b. 400 utility points.
c. 450 utility points.
d. 600 utility points.
A person receives 25 marginal utility points from the first piece of pizza she consumes,40 total utility points from two pieces of pizza, and 10 marginal utility points from thethird piece. How many total utility points does she receive from three pieces of pizza?
a. 15 points.
b. 25 points.
c. 50 points.
d. 75 points
According to the Law of Diminishing Marginal Utility:
a. marginal utility is increasing when total utility is decreasing.
b. the second unit of a good consumed adds less to total satisfaction than was added bythe first unit consumed.
c. there is less satisfaction from consuming when there is a wide range of goods tochoose from than when there is a narrow range.
d. beyond some point, the next unit of a good consumed adds less to total satisfactionthan was added by the unit consumed just before it.
The following table applies to next two questions. Total Cost is given in utility points.
1. According to the information in this table, diminishing marginal utility:
a. sets in when the second unit is consumed.
b. sets in when the third unit is consumed.
c. sets in when the fourth unit is consumed.
d. does not set in.
2. To maximize net benefit, this individual should consume:
a. 1 unit of Good X.
b. 2 units of Good X.
c. 3 units of Good X.
d. 4 units of Good X.
Net benefit is equal to:
a. total benefit.
b. total benefit minus total cost.
c. total benefit plus marginal benefit.
d. marginal benefit minus marginal cost.
According to public choice theory, individuals, in making collective decisions, try tomaximize:
a. their own well-being.
b. the well-being of society.
c. overall voter turnout on major issues.
d. their own total benefits, regardless of the total costs they will incur.
Suppose the private marginal cost of an activity exceeds its private marginal benefit at thelevel of the activity where society's net benefit is maximized. Based on this, societyshould want the amount of the activity to:
a. remain at the private-maximizing level.
b. increase from the private-maximizing level.
c. decrease from the private-maximizing level.
d. either decrease or increase from the private-maximizing level, depending on howmuch private marginal cost exceeds private marginal benefit.
If an activity creates negative externalities:
a. less of the activity is performed than is in the best interest of society.
b. the marginal social cost of the activity is less than its private marginal cost.
c. imposing taxes and other restraints on the activity's producers could be an appropriatepolicy to induce them to reduce the externalities.
d. the level of the activity that maximizes society's net benefit is greater than the levelthat maximizes the net benefit of the individual's performing the activity
Which of the following statements is true?
a. The social benefit of an action is equal to the private benefit minus any negativeexternalities.
b. Society maximizes its net benefit as long as marginal social benefit is greater thanmarginal social cost.
c. Society maximizes its net benefit by operating where total social benefit exceeds totalsocial cost by the greatest amount.
d. all of the above
According to this figure, at 800 units of output, marginal revenue:
a. equals marginal cost
b. exceeds marginal cost
c. is at its maximum level
d. is less than marginal cost.
According to this figure, profit is maximized at:
a. 500 units of output.
b. 800 units of output.
c. 1,000 units of output.
d. zero or 1,000 units of output.
1. According to this figure, an individual's:
a. total benefit from this activity increases up to five units and then decreases.
b. total benefit from this activity exceeds total cost by the greatest amount at five units.
c. total cost from this activity decreases up to five units and then increases.
d. all of the above
2. According to this figure, at six units of activity this individual's marginal cost would:
a. equal marginal benefit from the activity.
b. be less than marginal benefit from the activity.
c. be greater than marginal benefit from the activity.
d. be less or greater than marginal benefit, depending on whether the activity wasdecreasing or increasing at the time.
The amount of profit that must be earned to keep a business in operation is:
a. normal profit.
b. economic profit.
c. considered to be an explicit cost of production by economists.
d. none of the above
Profit is at a maximum where:
a. total revenue equals total cost.
b. total revenue is at a maximum.
c. marginal revenue is at a maximum.
d. marginal revenue equals marginal cost.
1. According to this table, to maximize profit this firm should produce and sell:
a. 1 unit of output.
b. 2 units of output.
c. 3 units of output.
d. 4 units of output.
2. The firm's profit at its profit-maximizing output is: