Cost-Benefit Analysis - AP Microeconomics
Card 1 of 30
Identify the opportunity cost in choosing to study over work.
Identify the opportunity cost in choosing to study over work.
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Income from work. Studying foregoes potential income from working.
Income from work. Studying foregoes potential income from working.
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Choose the correct decision: costs $300, benefits $400.
Choose the correct decision: costs $300, benefits $400.
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Proceed, benefits exceed costs. Positive net benefit of $100 justifies proceeding.
Proceed, benefits exceed costs. Positive net benefit of $100 justifies proceeding.
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If cost is \$100 and benefit is \$150, what is net benefit?
If cost is \$100 and benefit is \$150, what is net benefit?
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Net Benefit = \$50. Basic net benefit calculation: $\text{$150} - \text{$100} = \text{$50}$.
Net Benefit = \$50. Basic net benefit calculation: $\text{$150} - \text{$100} = \text{$50}$.
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What is the outcome if marginal cost is \$20 and benefit is \$25?
What is the outcome if marginal cost is \$20 and benefit is \$25?
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Proceed, benefit exceeds cost. Marginal benefit exceeds marginal cost, creating value.
Proceed, benefit exceeds cost. Marginal benefit exceeds marginal cost, creating value.
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What is the opportunity cost?
What is the opportunity cost?
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The value of the next best alternative foregone. Key concept for measuring true cost of any decision.
The value of the next best alternative foregone. Key concept for measuring true cost of any decision.
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What is the purpose of a discount rate?
What is the purpose of a discount rate?
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To calculate the present value of future cash flows. Converts future money values to today's equivalent value.
To calculate the present value of future cash flows. Converts future money values to today's equivalent value.
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Calculate net benefit if benefits are $1000 and costs are $700.
Calculate net benefit if benefits are $1000 and costs are $700.
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Net Benefit = $300. Apply the formula: Net Benefit = Benefits - Costs.
Net Benefit = $300. Apply the formula: Net Benefit = Benefits - Costs.
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Which cost is associated with lost potential gain?
Which cost is associated with lost potential gain?
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Opportunity cost. Represents the true economic cost of any choice.
Opportunity cost. Represents the true economic cost of any choice.
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Define indirect cost.
Define indirect cost.
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A cost not directly attributable to a specific activity. Must be allocated across multiple activities or products.
A cost not directly attributable to a specific activity. Must be allocated across multiple activities or products.
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Identify the concept of diminishing marginal returns.
Identify the concept of diminishing marginal returns.
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Decreasing additional output with additional input. Explains why production efficiency eventually decreases.
Decreasing additional output with additional input. Explains why production efficiency eventually decreases.
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What is the decision rule in cost-benefit analysis?
What is the decision rule in cost-benefit analysis?
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Proceed if benefits exceed costs. Basic principle for efficient resource allocation.
Proceed if benefits exceed costs. Basic principle for efficient resource allocation.
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Which analysis compares marginal costs and benefits?
Which analysis compares marginal costs and benefits?
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Marginal analysis. Decision-making tool for incremental choices.
Marginal analysis. Decision-making tool for incremental choices.
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What is a marginal cost?
What is a marginal cost?
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The cost of producing one more unit of a good. Essential for optimal production and pricing decisions.
The cost of producing one more unit of a good. Essential for optimal production and pricing decisions.
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What does it mean if net benefit is positive?
What does it mean if net benefit is positive?
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The benefits outweigh the costs of the decision. Indicates the decision creates economic value.
The benefits outweigh the costs of the decision. Indicates the decision creates economic value.
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Identify the primary goal of cost-benefit analysis.
Identify the primary goal of cost-benefit analysis.
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To determine if benefits exceed costs of an action. Fundamental decision-making criterion in economics.
To determine if benefits exceed costs of an action. Fundamental decision-making criterion in economics.
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State the formula for calculating net benefit.
State the formula for calculating net benefit.
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Net Benefit = Total Benefits - Total Costs. Standard formula to measure economic efficiency of decisions.
Net Benefit = Total Benefits - Total Costs. Standard formula to measure economic efficiency of decisions.
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Calculate net benefit with costs of $250 and benefits of $325.
Calculate net benefit with costs of $250 and benefits of $325.
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Net Benefit = $75. Net benefit calculation: $325 - $250 = $75.
Net Benefit = $75. Net benefit calculation: $325 - $250 = $75.
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Identify the opportunity cost in choosing to study over work.
Identify the opportunity cost in choosing to study over work.
Tap to reveal answer
Income from work. Studying foregoes potential income from working.
Income from work. Studying foregoes potential income from working.
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What is the opportunity cost?
What is the opportunity cost?
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The value of the next best alternative foregone. Key concept for measuring true cost of any decision.
The value of the next best alternative foregone. Key concept for measuring true cost of any decision.
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Calculate net benefit with costs of $250 and benefits of $325.
Calculate net benefit with costs of $250 and benefits of $325.
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Net Benefit = $75. Net benefit calculation: $325 - $250 = $75.
Net Benefit = $75. Net benefit calculation: $325 - $250 = $75.
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State the formula for calculating present value.
State the formula for calculating present value.
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$PV = \frac{FV}{(1 + r)^n}$. Discounts future value using interest rate and time period.
$PV = \frac{FV}{(1 + r)^n}$. Discounts future value using interest rate and time period.
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Calculate net benefit if benefits are $1000 and costs are $700.
Calculate net benefit if benefits are $1000 and costs are $700.
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Net Benefit = $300. Apply the formula: Net Benefit = Benefits - Costs.
Net Benefit = $300. Apply the formula: Net Benefit = Benefits - Costs.
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What is the purpose of a discount rate?
What is the purpose of a discount rate?
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To calculate the present value of future cash flows. Converts future money values to today's equivalent value.
To calculate the present value of future cash flows. Converts future money values to today's equivalent value.
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Which term describes non-monetary benefits?
Which term describes non-monetary benefits?
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Intangible benefits. Benefits that cannot be easily measured in monetary terms.
Intangible benefits. Benefits that cannot be easily measured in monetary terms.
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What is a sunk cost?
What is a sunk cost?
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A cost that has already been incurred and cannot be recovered. Should be ignored in future decision-making processes.
A cost that has already been incurred and cannot be recovered. Should be ignored in future decision-making processes.
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Which concept describes the time value of money?
Which concept describes the time value of money?
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Present value. Accounts for earning potential of money over time.
Present value. Accounts for earning potential of money over time.
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State the formula for calculating net benefit.
State the formula for calculating net benefit.
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Net Benefit = Total Benefits - Total Costs. Standard formula to measure economic efficiency of decisions.
Net Benefit = Total Benefits - Total Costs. Standard formula to measure economic efficiency of decisions.
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Identify the primary goal of cost-benefit analysis.
Identify the primary goal of cost-benefit analysis.
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To determine if benefits exceed costs of an action. Fundamental decision-making criterion in economics.
To determine if benefits exceed costs of an action. Fundamental decision-making criterion in economics.
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What does it mean if net benefit is positive?
What does it mean if net benefit is positive?
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The benefits outweigh the costs of the decision. Indicates the decision creates economic value.
The benefits outweigh the costs of the decision. Indicates the decision creates economic value.
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What is a marginal cost?
What is a marginal cost?
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The cost of producing one more unit of a good. Essential for optimal production and pricing decisions.
The cost of producing one more unit of a good. Essential for optimal production and pricing decisions.
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