Deck 2: Choice in a World of Scarcity

Question 1

The lesson of __________ is to forget about the money that's irretrievably gone and instead to focus on the marginal costs and benefits of future options.

A) marginal utility
B) sunk costs
C) marginal analysis
D) budget constraints

Answer 1

sunk costs

Question 2

Gomer decides to spend an hour playing basketball rather than studying. His opportunity cost is:

A) nothing, because he enjoys playing basketball more than studying.
B) the increase in skill he obtains from playing basketball for that hour.
C) the benefit to his grades from studying for an hour
D) nothing, because he had a free pass into the sports complex to play basketball.

Answer 2

the benefit to his grades from studying for an hour

Question 3

Scarcity implies that:

A) consumers would be willing to purchase the same quantity of a good at a higher price.
B) it is impossible to completely fulfill the unlimited human desire for goods and services with the limited resources available.
C) at the current market price, consumers are willing to purchase more of a good than suppliers are willing to produce.
D) consumers are too poor to afford the goods and services available.

Answer 3

it is impossible to completely fulfill the unlimited human desire for goods and services with the limited resources available.

Question 4

As a person receives more of a good, the _______________ from each additional unit of the good declines.

A) utility
B) sunk costs
C) marginal utility
D) budget constraint

Question 5

The model that economists use for illustrating the process of individual choice in a situation of scarcity is the _________________, sometimes also called the opportunity set, a diagram which shows what choices are possible.

A) consumption set
B) budget constraint
C) original budget
D) income cap

Question 6

Most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good.

A) utility
B) marginal analysis
C) the budget constraint
D) consumption

Question 7

Attending college is a case where the ________________ exceeds the monetary cost.

A) budget constraint
B) marginal analysis
C) opportunity cost
D) marginal utility

Question 8

The general pattern that consumption of the first few units of any good tends to bring a higher level of _______ to a person than consumption of later units is a common pattern.

A) utility
B) marginal benefit
C) opportunity cost
D) sunk costs

Question 9

"If I didn't have class tonight, I would save the $4 campus parking fee and spend four hours at work where I earn $10 per hour." The opportunity cost of attending class this evening is:

A) $0
B) $4
C) $40
D) $44

Question 10

The slope of the _________________ is determined by the relative price of the two goods, which is calculated by taking the price of one good and dividing it by the price of the other good.

A) personal preference
B) utility level
C) budget constraint
D) opportunity set

Question 11

Marginal thinking is best demonstrated by:

A) choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time.
B) deciding to never purchase a coat made with animal skins or furs
C) acquiring the information relevant to a choice before making that choice
D) measuring all of the costs of a meal against all of the benefits when deciding whether to order a second milkshake

Question 12

Philosophers draw a distinction between positive statements, which describe the world as it is, and ___________________s, which describe how the world should be.

A) normative statement
B) budget constraint
C) trade-off
D) opportunity cost

Question 13

The marginal benefit of a slice of pizza is the:

A) total amount that a consumer is willing to pay for a whole pizza, divided by the number of slices
B) difference between the value of the slice to the consumer and the price of the slice.
C) maximum amount that a consumer is willing to pay for the slice.
D) price of the slice of pizza

Question 14

Philosophers draw a distinction between ___________________, which describe the world as it is, and normative statements, which describe how the world should be.

A) negative statements
B) positive statements
C) tradeoffs
D) utilitarianism

Question 15

The opportunity cost of an action:

A) can be determined by considering both the benefits that flow from as well as the monetary costs incurred as a result of the action.
B) can be determined by adding up the bills incurred as a result of the action.
C) can be objectively determined only by economists.
D) is a subjective valuation that can be determined only by the individual who chooses the action.

Question 16

The law of ____________________________ explains why people and societies rarely make all-or-nothing choices.

A) consumption
B) marginal analysis
C) diminishing marginal utility
D) utility

Question 17

Scarcity exists because of:

A) the market mechanism.
B) specialization and division of labor.
C) the allocation of goods by prices
D) unlimited wants and limited resources.

Question 18

The leader of a federal political party made the following campaign promise: "My administration will increase national defense without requiring sacrifices elsewhere in the economy." The promise can be kept if:

A) the economy moves along the production possibilities in the direction of a greater quantity of defense.
B) the economy moves from a point inside the production possibilities curve toward a point on the production possibilities curve.
C) the production possibilities frontier shifts outward due to an improvement in technology.
D) either b) or c) occurs, but not as a result of a).

Question 19

The opportunity cost of attending university is likely to include all except which of the following?

A) the cost of haircuts received during the school term
B) the income you forgo in order to attend classes
C) tuition fees
D) the cost of required textbooks

Question 20

Why is there scarcity?

A) Because the opportunity set determines this.
B) Because theory dictates it.
C) Because our unlimited wants exceed our limited resources
D) Because human wants are limited.

Question 21

Most real-world choices aren't about getting all of one thing or another, instead, most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good.

A) utility
B) opportunity cost
C) benefit analysis
D) marginal analysis

Question 22

The model that economists use for illustrating the process of individual choice in a situation of scarcity is the budget constraint, sometimes also called the _______________, a diagram which shows what choices are possible.

A) opportunity set
B) consumption choice
C) time value of money
D) risk premium

Question 23

Which of the following would most likely shift the production possibilities curve inward?

A) an increase in the number of hours factories are in use
B) a decrease in the average number of hours worked per week as the labor force chooses to enjoy more leisure time
C) an increase in the production of capital goods
D) technological progress

Question 24

The economics approach portrays people as self-interested. Instead, the critics argue that people should be taught to care more deeply about others. Economists offer several answers to this concern. Offer two economist responses with explanation.

Question 25

The choice on a production possibilities set that is socially preferred, or the choice on an individual's budget constraint that is personally preferred, will display _____________________.

A) allocative efficiency
B) the production possibilities frontier
C) trade-offs
D) scarcity

Question 26

The lesson of __________ is to forget about the money that's irretrievably gone and instead to focus on the marginal costs and benefits of future options.

A) sunk costs
B) opportunity costs
C) marginal analysis
D) budget constraints

Question 27

Define the term "sunk costs" and illustrate with an example.

Question 28

Explain the Law of Diminishing Returns and illustrate with a relevant example.

Question 29

When economists analyze how individuals make choices, they divide the decision process into two steps. Define these two steps and label the resultant model.

Question 30

Economists refer to this pattern, the ___________________________________, which means that as a person receives more of a good, the additional or marginal utility from each additional unit of the good declines.

A) law of trade-offs
B) law of diminishing marginal utility
C) production possibilities frontier
D) law of increasing marginal utility

Question 31

In deciding how many hours to work, Beulah will make a choice that maximizes her _______; that is, she will choose according to her preferences for leisure time and income.

A) budget constraint
B) opportunity set
C) utility
D) production possibilities frontier

Question 32

The slope of the _________________ is determined by the relative price of the two goods, which is calculated by taking the price of one good and dividing it by the price of the other good.

A) Opportunity cost
B) productive efficiency
C) budget constraint
D) production possibilities frontier

Question 33

In many cases, it is reasonable to refer to the ________________ as the price.

A) budget constraint
B) sunk cost
C) opportunity cost
D) budget constraint.

Question 34

Draw a picture of a production possibilities frontier curve. Identify each axis as measuring either guns or butter. Select and label Point A, which is beyond the economy's ability to produce; Point B, which represents an inefficient level of production; Point C, an efficient combination of output in which more guns are produced than units of butter; and Point D, an efficient production point in which more units of butter are produced than guns. Be sure to label each clearly.

Question 35

When most people want to know the cost of an item or a service, they look for a price tag. When economists want to determine cost, they go one step further. They use the idea of opportunity cost. Explain the concept of opportunity cost and illustrate with an example.

Question 36

Define Productive Efficiency and Allocative Efficiency.