Chapter 2: Choice in a World of Scarcity

Marginal thinking is best demonstrated by:

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.

The opportunity cost of an action

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

Scarcity implies that

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

The marginal benefit of a slice of pizza is the

maximum amount that a consumer is willing to pay for the slice.

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

normative statements

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

opportunity cost

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

opportunity cost

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

positive statements

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

sunk costs

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

the benefit to his grades from studying for an hour

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

Scarcity exists because of

unlimited wants and limited resources

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.

utility

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

utility

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 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

budget constraint

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

budget constraint

The law of ________ explains why people and societies rarely make all-or-nothing decisions.

law of diminishing marginal utility

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.

law of diminishing utility

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.

marginal analysis

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

marginal utility