Suppose that the government is trying to decide between allocating its resources to build more dams or to build more freeways. In terms of forgone dams, as more freeways are constructed, the marginal benefit of additional freeways ________ and the marginal cost of additional freeways ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases

Question

Quizplus · Accepted Answer

In economic terms, as more of a good is produced (in this case, freeways), the marginal benefit of producing additional units of that good tends to decrease because the most important uses are satisfied first. Conversely, the marginal cost of producing additional units tends to increase because resources are not perfectly adaptable to all uses, so more and more resources (which could have been used to build dams, in this scenario) must be diverted from their next best use, making it increasingly costly to produce more of the good.

Suppose That the Government Is Trying to Decide Between Allocating