ECON 100 CHAPTER 1 QUESTIONS
AND CORRECT ANSWERS
Opportunity cost principle ✅✅CORRECT ANSW-The true cost of something is the next best
alternative you have to give up to
Sunk cost ✅✅CORRECT ANSW-A cost that has been incurred and cannot be reversed. A sunk cost
exists in whatever choice you make, and hence is not an opportunity
Production possibilities frontier (ppf) ✅✅CORRECT ANSW-It shows the different sets of output
that are attainable with your scarce resources. Illustrates the trade-offs you confront when deciding
how to allocate your scarce resources (such as your time)
Marginal principle ✅✅CORRECT ANSW-Decisions about quantities are best made incrementally.
You should break 'how many' questions into a series of smaller or marginal decisions, weighing the
marginal benefits and the marginal costs
Marginal cost ✅✅CORRECT ANSW-The extra benefit from one extra unit (of goods purchased,
hours studied etc.)
Marginal benefit ✅✅CORRECT ANSW-The extra costs from one more extra unit
Cost-benefit principle ✅✅CORRECT ANSW-The incentives that shape decisions
Willingness to pay ✅✅CORRECT ANSW-In order to convert non financial costs or benefits into
their monetary equivalent as yourself 'what is the most I'm willing to pay to get this benefit (or avoid
that cost?)'
Economic surplus ✅✅CORRECT ANSW-The total benefits minus the total costs flowing from a
decision. It measures how much a decision has improved your well-being. Making good decisions is
about maximizing your economic surplus.
Framing effect ✅✅CORRECT ANSW-When a decision is affected by how a choice is described or
framed (Example 1: when an items price tag shows both the original price and the sale price)
AND CORRECT ANSWERS
Opportunity cost principle ✅✅CORRECT ANSW-The true cost of something is the next best
alternative you have to give up to
Sunk cost ✅✅CORRECT ANSW-A cost that has been incurred and cannot be reversed. A sunk cost
exists in whatever choice you make, and hence is not an opportunity
Production possibilities frontier (ppf) ✅✅CORRECT ANSW-It shows the different sets of output
that are attainable with your scarce resources. Illustrates the trade-offs you confront when deciding
how to allocate your scarce resources (such as your time)
Marginal principle ✅✅CORRECT ANSW-Decisions about quantities are best made incrementally.
You should break 'how many' questions into a series of smaller or marginal decisions, weighing the
marginal benefits and the marginal costs
Marginal cost ✅✅CORRECT ANSW-The extra benefit from one extra unit (of goods purchased,
hours studied etc.)
Marginal benefit ✅✅CORRECT ANSW-The extra costs from one more extra unit
Cost-benefit principle ✅✅CORRECT ANSW-The incentives that shape decisions
Willingness to pay ✅✅CORRECT ANSW-In order to convert non financial costs or benefits into
their monetary equivalent as yourself 'what is the most I'm willing to pay to get this benefit (or avoid
that cost?)'
Economic surplus ✅✅CORRECT ANSW-The total benefits minus the total costs flowing from a
decision. It measures how much a decision has improved your well-being. Making good decisions is
about maximizing your economic surplus.
Framing effect ✅✅CORRECT ANSW-When a decision is affected by how a choice is described or
framed (Example 1: when an items price tag shows both the original price and the sale price)
