Choice in a World of Scarcity

A filtration improvement has been proposed for the old water plant that serves the entire city. Water rates have been only 2 cents per gallon, but with the improvement, the rate would be 5 cents per gallon. A rational debate for city residents at this time would be centered on which question? Are the additional benefits of cleaner water worth paying 3 more cents per gallon? Can people afford paying more than twice as much for the same amount of water? Is it worth paying 5 cents per gallon to have a city water system? ~ formative

Are the additional benefits of cleaner water worth paying 3 more cents per gallon?

The theory of rational behavior Assumes that people will always attempt to act in their own self-interest Implies that people will always know exactly what they are buying Is an assumption that economists make to have a useful model for how decisions are made

Assumes that people will always attempt to act in their own self-interest Is an assumption that economists make to have a useful model for how decisions are made

Self-interest can include more than a concern for oneself. To the extent that the happiness of others contributes significantly to the our own happiness, actions taken in our own self-interest may have benefits for Strangers Close friends and family Humankind as a whole

Close friends and family

Which of the following three statements are normative? Tax breaks can change corporate behavior. Congress gives certain business corporations tax breaks. Congress gives too many tax breaks to corporations.

Congress gives too many tax breaks to corporations.

Making an economically rational decision requires Equal consideration for your own and others' welfare Always considering the long-run Considering all prospective marginal benefits and marginal costs to oneself

Considering all prospective marginal benefits and marginal costs to oneself

The theory of rational behavior Is an assumption that economists make to have a useful model for how decisions are made Assumes that people will behave in the best interest of society as a whole Implies that people will always take the time to make perfectly informed decisions

Is an assumption that economists make to have a useful model for how decisions are made

Which of the following statements is/are reflecting decision-making on the margin? The total cost of the program is equal to the total benefits. One more day in this cottage will be nice, but how much will the cost of the rental rise? If we double the order to a dozen doughnuts, we will pay only twenty percent more.

One more day in this cottage will be nice, but how much will the cost of the rental rise? If we double the order to a dozen doughnuts, we will pay only twenty percent more.

It is said that the rational consumer will act according to their self-interest, and that self-interest can include a concern for one's family and friends, but not often society as a whole. Which of the following illustrates this type of decision? Renting of recreational vehicles for use in national parks is responsive to the price charged, but not to concerns of noise pollution. Our time was very valuable at that moment, but we stopped to put out the fire before it spread. The boat rental was worth the additional fish catch, regardless how little fish we left behind.

Renting of recreational vehicles for use in national parks is responsive to the price charged, but not to concerns of noise pollution. The boat rental was worth the additional fish catch, regardless how little fish we left behind.

A restaurant chain sponsors a charity that provides for children with cancer to be treated with their parents present. How would the use of company funds for this purpose be justified by a business whose goal is to maximize profit? The funds dedicated to this purpose represent a very small share of profits. The money spent is worth the boost it gives to corporate image. The money will be spent efficiently to cure cancer.

The money spent is worth the boost it gives to corporate image.

After cost overruns of the electric project, $20 million was already spent and unrecoverable. It was going to cost $12 million more in order to complete the project, and now society somehow needs to make the rational choice to continue with the project provided that the additional electricity is worth more than $32 million. continue with the project provided that the additional electricity is worth more than $12 million. continue with the project provided that the additional electricity is worth more than $20 million.

continue with the project provided that the additional electricity is worth more than $12 million.

After cost overruns of the solar project, $10 million was already spent and unrecoverable. It was going to cost $12 million more in order to complete the project, and now society somehow needs to make the rational choice to continue with the project provided that the additional solar electricity is worth more than $32 million. continue with the project provided that the additional solar electricity is worth more than $22 million. continue with the project provided that the additional solar electricity is worth more than $10 million.

continue with the project provided that the additional solar electricity is worth more than $10 million.

Suppose that there are only two types of output in North Korea: nuclear missiles and consumer goods. All else constant, as the nation produces more missiles the opportunity cost of consumer wants satisfied is diminishing. every additional missile will reduce consumer goods production by more and more. the greater is the opportunity cost of consumer wants satisfied.

every additional missile will reduce consumer goods production by more and more. the greater is the opportunity cost of consumer wants satisfied.

The slope of a budget constraint line is influenced by how much one item costs compared to the cost of the other item. how effectively one more of each of the two competing goods satisfies wants. the tastes and preferences of the decision-maker.

how much one item costs compared to the cost of the other item.

A profit-maximizing decision must be made about whether to keep a bed & breakfast operating. Until the place sells, the mortgage of $3000/month must be paid, since it is a sunk cost. If the restaurant operates, costs rise by $4000 per month, but revenue will be only $6000 per month. Until the building can be sold, it is best to ignore sunk cost and keep the bed & breakfast operating. it is best to keep the bed & breakfast operating because it is profitable. it is best to shut down the bed & breakfast since it is taking a loss.

it is best to ignore sunk cost and keep the bed & breakfast operating.

Marginal cost is necessary to consider in a rational decision, and should be compared to marginal benefit. opportunity cost total benefit.

marginal benefit.

The production possibilities model is illustrated with a negatively sloped line because production of different types will compete for limited resources. of diminishing returns. the opportunity cost of producing more of something will rise.

production of different types will compete for limited resources.

A non-linear ("bending") production possibilities model assumes that technology can advance. some land or labor is more productive in one use than another. the opportunity cost of producing more of something will remain constant.

some land or labor is more productive in one use than another.

Rational decision-making considers all of the following except sunk costs. monetary costs. opportunity costs.

sunk costs.

Rational decision-making ignores any consideration of: monetary costs. opportunity costs. sunk costs.

sunk costs.

The agricultural extension agent told the farmer that one more crop-dusting will likely add a ton of additional wheat to the harvest. The rational farmer then calculated the selling price of a ton of wheat, since he would decide to crop-dust again if and only if the marginal benefit is greater than the marginal cost of an additional crop-dusting. the additional crops grown from one more crop-dusting (the marginal product) is rising. the total benefits from all crop-dustings is greater than the the total cost of all crop-dustings.

the marginal benefit is greater than the marginal cost of an additional crop-dusting.

Scarcity is imposed on individual households in the form of the prices of the goods that we may purchase. utility. income (budget) limitations.

the prices of the goods that we may purchase. income (budget) limitations.

A budget constraint model differs from production possibilities model in that, typically the budget constraint depicts an inverse relationship, or a trade-off. the budget constraint demonstrates diminishing returns. the production possibilities model demonstrates diminishing returns.

the production possibilities model demonstrates diminishing returns.

The slope of a budget constraint line is influenced by the relative prices of the two goods competing to satisfy wants. the size of the budget. the tastes and preferences of the decision-maker.

the relative prices of the two goods competing to satisfy wants.

Normative statements are based upon facts. conjecture. value judgements.

value judgements.

Normative statements are based upon what can be demonstrated to be true. value judgements. conjecture.

value judgements.

The house that Jeanne inherited from her mother can rent for $1500/month, but Jeanne decides to allow her brother to stay there for only $500 per month. This decision carried with it a $1000 per month monetary and opportunity cost. zero monetary cost but a $1000 per month opportunity cost. $500 per month monetary cost but a $1500 per month opportunity cost.

zero monetary cost but a $1000 per month opportunity cost.