Econ 101 Exam 1 (Ch. 1-6)
UPDATED Questions and Answers
100% Pass
Cost-Benefit Principle - CORRECT ANSWER-Costs and benefits are the
incentives that shape decisions You should evaluate the full set of costs and
benefits of any choice, and only pursue those whose BENEFITS ARE AT LEAST
AS LARGE AS THEIR COSTS.
Willingness to Pay - CORRECT ANSWER-In order to convert non financial costs
or benefits into their monetary equivalent, ask yourself: "What is the most I am
willing to pay to get this benefit (or avoid that cost)?"
Economic Surplus - CORRECT ANSWER-The total benefits minus total costs
flowing from a decision. It measures how much a decision has improved your well-
being.
Framing Effect - CORRECT ANSWER-When a decision is affected by how a
choice is DESCRIBED, OR FRAMED. You should AVOID framing effects
altering your own decisions.
, Opportunity Cost Principle - CORRECT ANSWER-The true cost of something is
the NEXT BEST ALTERNATIVE you have to give up to get it.
Sunk Cost - CORRECT ANSWER-A cost that has been incurred and CANNOT
BE REVERSED. A sunk cost exists whatever choice you make, and hence it is not
an opportunity cost. Good decisions IGNORE sunk costs.
Example: Paying for a movie ticket and you end up hating the movie ten minutes
in, you are better off leaving and taking the ticket as a sunk cost then staying.
Production Possibility Frontier - CORRECT ANSWER-Shows the different sets
of output that are attainable with you scarce resources.
Marginal Principle - CORRECT ANSWER-Decisions about quantities are best
made incrementally. You should break "how many" questions into a series of
smaller, or marginal decisions, weighing marginal benefits and marginal costs.
Marginal Benefit - CORRECT ANSWER-The extra benefit from one extra unit
(of goods purchased, hours studied, etc.).
Marginal Cost - CORRECT ANSWER-The extra cost from one extra unit.
Rational Rule - CORRECT ANSWER-If something is worth doing, keep doing it
until your marginal benefits equal your marginal costs.
Interdependence Principle - CORRECT ANSWER-Your best choice depends on
your other choices, the choices others make, developments in other markets, and
COPYRIGHT ©️ 2025 ALL RIGHTS RESERVED
UPDATED Questions and Answers
100% Pass
Cost-Benefit Principle - CORRECT ANSWER-Costs and benefits are the
incentives that shape decisions You should evaluate the full set of costs and
benefits of any choice, and only pursue those whose BENEFITS ARE AT LEAST
AS LARGE AS THEIR COSTS.
Willingness to Pay - CORRECT ANSWER-In order to convert non financial costs
or benefits into their monetary equivalent, ask yourself: "What is the most I am
willing to pay to get this benefit (or avoid that cost)?"
Economic Surplus - CORRECT ANSWER-The total benefits minus total costs
flowing from a decision. It measures how much a decision has improved your well-
being.
Framing Effect - CORRECT ANSWER-When a decision is affected by how a
choice is DESCRIBED, OR FRAMED. You should AVOID framing effects
altering your own decisions.
, Opportunity Cost Principle - CORRECT ANSWER-The true cost of something is
the NEXT BEST ALTERNATIVE you have to give up to get it.
Sunk Cost - CORRECT ANSWER-A cost that has been incurred and CANNOT
BE REVERSED. A sunk cost exists whatever choice you make, and hence it is not
an opportunity cost. Good decisions IGNORE sunk costs.
Example: Paying for a movie ticket and you end up hating the movie ten minutes
in, you are better off leaving and taking the ticket as a sunk cost then staying.
Production Possibility Frontier - CORRECT ANSWER-Shows the different sets
of output that are attainable with you scarce resources.
Marginal Principle - CORRECT ANSWER-Decisions about quantities are best
made incrementally. You should break "how many" questions into a series of
smaller, or marginal decisions, weighing marginal benefits and marginal costs.
Marginal Benefit - CORRECT ANSWER-The extra benefit from one extra unit
(of goods purchased, hours studied, etc.).
Marginal Cost - CORRECT ANSWER-The extra cost from one extra unit.
Rational Rule - CORRECT ANSWER-If something is worth doing, keep doing it
until your marginal benefits equal your marginal costs.
Interdependence Principle - CORRECT ANSWER-Your best choice depends on
your other choices, the choices others make, developments in other markets, and
COPYRIGHT ©️ 2025 ALL RIGHTS RESERVED
