What this deck covers
This deck focuses on Cost Benefit Analysis, giving you a quick way to review the definitions, rules, and examples that matter most for AP Microeconomics.
AP Microeconomics Flashcards: Cost Benefit Analysis
Study Cost Benefit Analysis in AP Microeconomics with focused flashcards that help you recognize the idea, recall the key rule, and apply it in practice-style prompts.
AP Microeconomics
Cost Benefit Analysis
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QUESTION
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If costs are $500 and benefits are $450, should you proceed?
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ANSWER
No, since costs exceed benefits. Negative net benefit means the decision destroys value.
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Flashcard 1: If costs are $500 and benefits are $450, should you proceed?
Answer: No, since costs exceed benefits. Negative net benefit means the decision destroys value.
Flashcard 2: Calculate net benefit with costs of $250 and benefits of $325.
Answer: Net Benefit = $75. Net benefit calculation: $325 - $250 = $75.
Flashcard 3: What is the outcome if marginal cost is $20 and benefit is $25?
Answer: Proceed, benefit exceeds cost. Marginal benefit exceeds marginal cost, creating value.
Flashcard 4: Find the net benefit: costs $400, benefits $600.
Answer: Net Benefit = $200. Simple subtraction: $600 - $400 = $200.
Flashcard 5: Identify the opportunity cost in choosing to study over work.
Answer: Income from work. Studying foregoes potential income from working.
Flashcard 6: What does it mean if net benefit is positive?
Answer: The benefits outweigh the costs of the decision. Indicates the decision creates economic value.
Flashcard 7: Which concept describes the time value of money?
Answer: Present value. Accounts for earning potential of money over time.
Flashcard 8: Define indirect cost.
Answer: A cost not directly attributable to a specific activity. Must be allocated across multiple activities or products.
Flashcard 9: What is a marginal cost?
Answer: The cost of producing one more unit of a good. Essential for optimal production and pricing decisions.
Flashcard 10: State the formula for calculating net benefit.
Answer: Net Benefit = Total Benefits - Total Costs. Standard formula to measure economic efficiency of decisions.
Flashcard 11: Which analysis compares marginal costs and benefits?
Answer: Marginal analysis. Decision-making tool for incremental choices.
Flashcard 12: What is a marginal cost?
Answer: The cost of producing one more unit of a good. Essential for optimal production and pricing decisions.
Flashcard 13: What does it mean if net benefit is positive?
Answer: The benefits outweigh the costs of the decision. Indicates the decision creates economic value.
Flashcard 14: Calculate present value: $1000 in 2 years at 5% interest.
Answer: $PV = \frac{1000}{(1.05)^2} = 907.03. Use the present value formula with given parameters.
Flashcard 15: State the formula for calculating present value.
Answer: PV=(1+r)nFV. Discounts future value using interest rate and time period.
Flashcard 16: Choose the correct decision: costs $300, benefits $400.
Answer: Proceed, benefits exceed costs. Positive net benefit of $100 justifies proceeding.
Flashcard 17: What is a sunk cost?
Answer: A cost that has already been incurred and cannot be recovered. Should be ignored in future decision-making processes.
Flashcard 18: What is the outcome if marginal cost is $20 and benefit is $25?
Answer: Proceed, benefit exceeds cost. Marginal benefit exceeds marginal cost, creating value.
Flashcard 19: Calculate net benefit with costs of $250 and benefits of $325.
Answer: Net Benefit = $75. Net benefit calculation: $325 - $250 = $75.
Flashcard 20: What is the opportunity cost?
Answer: The value of the next best alternative foregone. Key concept for measuring true cost of any decision.
Flashcard 21: Identify the primary goal of cost-benefit analysis.
Answer: To determine if benefits exceed costs of an action. Fundamental decision-making criterion in economics.
Flashcard 22: What is the opportunity cost?
Answer: The value of the next best alternative foregone. Key concept for measuring true cost of any decision.
Flashcard 23: Calculate net benefit if benefits are $1000 and costs are $700.
Answer: Net Benefit = $300. Apply the formula: Net Benefit = Benefits - Costs.
Flashcard 24: Which term describes non-monetary benefits?
Answer: Intangible benefits. Benefits that cannot be easily measured in monetary terms.
Flashcard 25: Identify the opportunity cost in choosing to study over work.
Answer: Income from work. Studying foregoes potential income from working.
Flashcard 26: State the formula for calculating net benefit.
Answer: Net Benefit = Total Benefits - Total Costs. Standard formula to measure economic efficiency of decisions.
Flashcard 27: What is the decision rule in cost-benefit analysis?
Answer: Proceed if benefits exceed costs. Basic principle for efficient resource allocation.
Flashcard 28: Which cost is associated with lost potential gain?
Answer: Opportunity cost. Represents the true economic cost of any choice.
Flashcard 29: What is the result of $800 benefit and $900 cost?
Answer: Net Benefit = -$100. Negative net benefit indicates costs exceed benefits.
Flashcard 30: Identify the primary goal of cost-benefit analysis.
Answer: To determine if benefits exceed costs of an action. Fundamental decision-making criterion in economics.
Flashcard 31: What is the purpose of a discount rate?
Answer: To calculate the present value of future cash flows. Converts future money values to today's equivalent value.
Flashcard 32: Which cost is associated with lost potential gain?
Answer: Opportunity cost. Represents the true economic cost of any choice.
Flashcard 33: What is the sunk cost in a scenario where $300 is spent and non-refundable?
Answer: $300. Non-refundable expenses are classic sunk costs.
Flashcard 34: Which analysis compares marginal costs and benefits?
Answer: Marginal analysis. Decision-making tool for incremental choices.
Flashcard 35: Which decision follows if marginal benefit exceeds marginal cost?
Answer: Proceed with the decision. Efficient allocation occurs when marginal benefit exceeds marginal cost.
Flashcard 36: Identify the concept of diminishing marginal returns.
Answer: Decreasing additional output with additional input. Explains why production efficiency eventually decreases.
Flashcard 37: Choose the correct decision: costs $300, benefits $400.
Answer: Proceed, benefits exceed costs. Positive net benefit of $100 justifies proceeding.
Flashcard 38: If cost is $100 and benefit is $150, what is net benefit?
Answer: Net Benefit = $50. Basic net benefit calculation: \text{\150} - \text{$100} = \text{$50}$.
Flashcard 39: Define indirect cost.
Answer: A cost not directly attributable to a specific activity. Must be allocated across multiple activities or products.
Flashcard 40: If the decision improves productivity, what benefit type is it?
Answer: Intangible benefit. Productivity improvements are non-monetary intangible benefits.
Flashcard 41: Calculate net benefit if benefits are $1000 and costs are $700.
Answer: Net Benefit = $300. Apply the formula: Net Benefit = Benefits - Costs.
Flashcard 42: What is the decision rule in cost-benefit analysis?
Answer: Proceed if benefits exceed costs. Basic principle for efficient resource allocation.
Flashcard 43: What is the purpose of a discount rate?
Answer: To calculate the present value of future cash flows. Converts future money values to today's equivalent value.
Flashcard 44: Identify the concept of diminishing marginal returns.
Answer: Decreasing additional output with additional input. Explains why production efficiency eventually decreases.