ECON Ch.1 Review

Which of the following statements is true about scarcity? A) Scarcity refers to the situation in which unlimited wants exceed limited resources. B) Scarcity is only a problem when a country has too large a population. C) Scarcity is not a problem for the wealthy. D) Scarcity arises when there is a wide disparity in income distribution.

A) Scarcity refers to the situation in which unlimited wants exceed limited resources.

In economics, the term ________ means "additional" or "extra." A) marginal B) allocative C) optimal D) equity

A) marginal

DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. Should DeShawn continue to offer the engine detailing service? A) no, his marginal benefit is less than his marginal cost B) More information is needed for DeShawn to make this decision. C) yes, but only if he raises the price of the basic detailing package D) yes, he still makes a profit by selling the engine detailing service with the basic detailing package

A) no, his marginal benefit is less than his marginal cost

Suppose that some teachers have decided that economic and financial uncertainty have made the prospect of retiring more risky, and therefore carry a higher cost than not retiring. By using all available information as they act to achieve their goals, these teachers are exemplifying the economic idea that A) people are rational. B) equity is more important than efficiency. C) people respond to economic incentives. D) optimal decisions are made at the margin.

A) people are rational.

Which of the following is a positive economic statement? 3) _______ A) Foreign workers should not be allowed to work for lower wages than the citizens of a country. B) The government should mandate electric automobiles. C) Scarcity necessitates that people make trade-offs. D) People should not buy SUVs.

C) Scarcity necessitates that people make trade-offs.

Economists assume that rational behavior is useful in explaining choices people make A) because irrational people do not make economic choices. B) even though people rarely, if ever, behave in a rational manner. C) even though people may not behave rationally all the time. D) because individuals act rationally all the time in all circumstances.

C) even though people may not behave rationally all the time.

Economists reason that the optimal decision is to continue any activity up to the point where the A) marginal cost is zero. B) marginal benefit is greater than the marginal cost. C) marginal benefit equals the marginal cost. D) marginal benefit is zero.

C) marginal benefit equals the marginal cost.