econ CHAPTER 2

Attending college is a case where the ________________ exceeds the monetary cost. budget constraint marginal analysis opportunity cost marginal utility

opportunity cost

Refer to Figure 2-2. At Point A in the production possibilities graph shown above, the economy: is not using its resources efficiently. is using its resources efficiently while producing clothing but no food. is using its resources efficiently while producing food but no clothing. is using its resources efficiently to produce both food and clothing.

is not using its resources efficiently.

In many cases, it is reasonable to refer to the ________________ as the price. budget constraint sunk cost opportunity cost budget constraint

opportunity cost

Gomer decides to spend an hour playing basketball rather than studying. His opportunity cost is: nothing, because he enjoys playing basketball more than studying. the increase in skill he obtains from playing basketball for that hour. the benefit to his grades from studying for an hour nothing, because he had a free pass into the sports complex to play basketball.

the benefit to his grades from studying for an hour

As depicted in _________________________________, it is necessary to give up some of one good to gain more of the other good. the production possibilities frontier allocative efficiency scarcity utility

the production possibilities frontier

Scarcity exists because of: the market mechanism. specialization and division of labor. the allocation of goods by prices unlimited wants and limited resources.

unlimited wants and limited resources.

Which of the following would most likely shift the production possibilities curve inward? an increase in the number of hours factories are in use a decrease in the average number of hours worked per week as the labor force chooses to enjoy more leisure time an increase in the production of capital goods technological progress

a decrease in the average number of hours worked per week as the labor force chooses to enjoy more leisure time

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. personal preference utility level budget constraint opportunity set

budget constraint

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

either b) or c) occurs, but not as a result of a)

The opportunity cost of an action: can be determined by considering both the benefits that flow from as well as the monetary costs incurred as a result of the action. can be determined by adding up the bills incurred as a result of the action. can be objectively determined only by economists. is a subjective valuation that can be determined only by the individual who chooses the action.

is a subjective valuation that can be determined only by the individual who chooses the action.

Possibility A Economics History I 94 76 II 87 84 III 77 91 Table 2-1 Refer to Table 2-1. A student has only a few hours to prepare for two different exams tomorrow morning. The above table shows alternative possible exam outcomes with three alternative uses of the student's time. The opportunity cost of scoring an 84 on the history exam rather than 76 is: 10 points on the economics exam 8 points on the history exam 7 points on the economics exam 12 points on the economics exam

7 POINT ON THE ECONOMICS EXAM

Refer to Figure 2-2. When the economy moves from Point A to Point B in the diagram above: the economy begins using its resources efficiently to produce both food and clothing. the economy operates at its productive capacity once it reaches Point B. the economy increases production of both clothing and food. All of the above occur.

ALL OF THE ABOVE OCCUR

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 _____________________. allocative efficiency the production possibilities frontier trade-offs scarcity

ALLOCATIVE EFFICIENCY

Refer to Figure 2-1. Along the production possibilities frontier, the most efficient point of production depicted is: Point B Point C Point D All points on the production possibilities frontier are equally efficient.

All points on the production possibilities frontier are equally efficient.

Why is there scarcity? Because the opportunity set determines this. Because theory dictates it. Because our unlimited wants exceed our limited resources Because human wants are limited.

Because our unlimited wants exceed our limited resources

Refer to Figure 2-1. An economy is operating at full employment, and then workers in the bread industry are laid off. This change is portrayed in the movement from: A to B B to E C to F G to F

C TO F

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. opportunity set consumption choice time value of money risk premium

OPPORTUNITY SET

Refer to Figure 2-1. The most inefficient point depicted is: Point A Point C Point D Point G

POINT G

The opportunity cost of attending university is likely to include all except which of the following? the cost of haircuts received during the school term the income you forgo in order to attend classes tuition fees the cost of required textbooks

THE COST OF HAIRCUTS RECEIVED DURING THE SCHOOL TERM

"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: $0 $4 $40 $44

$44

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

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

Possibility A Economics History I 94 76 II 87 84 III 77 91 Table 2-1 Referring to Table 2-1: A student has only a few hours to prepare for two different exams this afternoon. The above table shows alternative possible exam scores with three alternative uses of the student's time. The opportunity cost of scoring a 94 on the economics exam rather than a 77 is: 8 points on the history exam. 15 points on the history exam. 14 points on the history exam. 17 points on the history exam.

15 points on the history exam.