Question

Which of the basic principles of economics is at work in the following situation? You decide how many cups of coffee to have when studying the night before an exam by considering how much more work you can do by having another cup versus how jittery it will make you feel.

Answer 1

Answer:

The answer is: Cost-Benefits Analysis

Explanation:

A cost benefit analysis is done to identify the benefits of an action as well as the associated costs. You then subtract the costs from benefits, and if the numbers are positive you know it´s a good project. But if the costs are too big and offset the benefits, then the project is no good.

In this specific case, you have to balance the cost of drinking an extra cup of coffee (how jittery or nervous it makes you feel) with the benefits of drinking that cup of coffee (all the extra work you can do). Usually someone will keep studying and drinking coffee until they just can´t bear standing awake. It also depends on how much you really need a good grade on that specific test.