Ch. 2, Scarcity and the World of Trade-Offs

If the bank were to own the​ property, its total costs were likely to be ________ Mary Krawiec's explicit cost.

higher than

________ are unlimited. They include all material desires and all non-material​ desires, such as​ love, affection,​ power, and prestige.

wants

What are goods?

all things from which individuals derive satisfaction or happiness

what is labor?

productive contributions of humans who work

Scarcity requires us to choose. Whenever we​ choose, we lose the ________-valued alternative

next-highest

Recently, a woman named Mary Krawiec attended an auction in​ Troy, New York. At the​ auction, a bank was seeking to sell a foreclosed​ property: a large Victorian house suffering from years of neglect in a neighborhood in which many properties had been on the market for years yet remained unsold. Her​ $10 offer was the highest bid in the​ auction, and she handed over a​ $10 bill for a title to ownership. Once she acquired the​ house, however, she became responsible for all taxes on the property amounting to ​$3,500 and for an overdue water bill of ​$2,500. In​ addition, to make the house​ habitable, she and her husband devoted months of time and unpaid labor to renovating the property. In the​ process, they incurred explicit expenses totaling ​$61,649. Calculate Mary​ Krawiec's explicit cost

$67,659 Note: Mary​ Krawiec's explicit costs are equal to her Explicit expenses + Property taxes + Water bill = 61,649 + 3,500 + 2,500 + 10 = 67,659

The following table lists the costs incurred by a student attending a public university for one semester. ​(Note: By attending​ college, the student will have to work fewer hours but will stay in his current​ apartment.) What is the total opportunity cost that the student incurs by attending college for one​ semester? A. $2,600. B. $8,600. C. $2,800. D. $9,400

B. $8,600 Note: You will have room and board expenses in or out of college. Opportunity​ cost, on the other​ hand, is limited to the value of the next best alternative to attending school.

Why do economists avoid making the distinction between wants and needs​? A. Individual wants are limited making it easier for economists to address this concept. B. The term need is subjective making it difficult to distinguish between something someone wants and something they need. C. Individual needs do not exist so it is necessary to only consider​ individuals' wants. D. Every individual has exactly the same set of needs. Economists consider individual wants because they differ from one individual to another.

B. The term need is subjective making it difficult to distinguish between something someone wants and something they need.

Opportunity cost A. only is considered for goods in short supply. B. is the value of the next best alternative as a result of choosing some given alternative. C. is the value of all alternatives forgone as a result of choosing some given alternative. D. either B or C.

B. is the value of the next best alternative as a result of choosing some given alternative.

When an individual proclaims the need for a new​ car, the person typically means A. that their ability to get around will cease. B. that without a new​ car, their life cannot go on. C. they want something they currently do not have. D. that having such a possession would be nirvana.

C. they want something they currently do not have.

The bank was willing to sell the house at auction to Ms. Krawiec for only​ $10 because if the bank paid to renovate the​ property, paid the back​ taxes, and paid the overdue water​ bill, A. the expected selling price for the property would have been higher than Mary​ Krawiec's explicit costs. B. the expected selling price for the property would have been higher than Mary​ Krawiec's total costs. C. the expected selling price for the property would have been only ten percent higher than the​ bank's total costs. D. the expected selling price for the property would have been lower than the​ bank's total costs.

D. the expected selling price for the property would have been lower than the​ bank's total costs.

What are economic goods?

Goods that are scarce, for which the quantity demanded exceeds the quantity supplied at a zero price.

Scarcity is the same as a shortage. A. True B. False

B. False

Which of the following is not a factor of production A. land. B. money. C. human capital. D. entrepreneurship.

B. money.

Cost is always a forgone ________.

opportunity

Based on the information provided in the table to the​ right, the opportunity cost to this student of allocating enough additional study time on economics to move her grade up from a 90 to a 100 is a reduction in her biology grade of ________ points

10 points

During a debate on the floor of the U.S.​ Senate, Senator Creighton​ states, ​"Our nation should not devote so many of its fully employed resources to producing capital goods because we already are not producing enough consumption goods for our​ citizens." In response to Senator​ Creighton's statement, Senator Long​ replies, ​"We must remain at our current production combination if we want to be able to produce more consumption goods in the​ future." Senator Borman interjects the following comment after the statements by Senators Creighton and​ Long: ​"In fact, both of my esteemed colleagues are wrong because an unacceptably large portion of our​ nation's resources is currently​ unemployed." Of the labeled points on the diagram to the​ right, the one consistent with Senator​ Borman's position is _________

A

What is the production possibilities curve (PPC)?

A curve representing all possible combinations of maximum outputs that could be produced, assuming a fixed amount of productive resources of a given quality.

Which of the following would least likely​ be, for the typical​ student, the opportunity cost of attending a class at​ 11:00 a.m.? A. Partying with a close circle of friends. B. Accepting work at the mall as a​ part-time sales associate. C. Getting the​ "jump" on most students by getting to the dining hall for lunch before the​ mid-day rush. D. Taking a much needed course offered by another department.

A. Partying with a close circle of friends.

Economic goods are goods for which the quantity demanded exceeds the quantity supplied at a zero price. A. True B. False

A. True

Entrepreneurship is the component of human resources that performs the functions of​ organizing, managing, and assembling the other factors of production to create and operate business ventures. A. True B. False

A. True

Every choice involves giving up an opportunity to produce or consume something else. A. True B. False

A. True

Any activity that results in the conversion of resources into products that can be used in consumption is called A. production. B. transformation. C. substitution. D. derived demand.

A. production.

The existence of scarcity requires A. that people must make choices and face​ trade-offs in using their resources. B. greater scientific advancements occur to eliminate it. C. that the government allocates resources. D. having unfulfilled wants during times of economic depression.

A. that people must make choices and face​ trade-offs in using their resources.

We use scarce​ resources, such​ as__________, __________,​ __________ and​ __________ capital, and​ __________, to produce economic goods—goods that are desired but are not directly obtainable from nature to the extent demanded or desired at a zero price. A. ​land; labor;​ physical; human; entrepreneurship B. land; labor;​ depreciation; human; administration C. land; labor;​ physical; investment; entrepreneurship D. water; labor;​ physical; investment; entrepreneurship

A. ​land; labor;​ physical; human; entrepreneurship

What is production?

Any activity that results in the conversion of resources into products that can be used in consumption.

What is an inefficient point?

Any point below the production possibilities curve, at which the use of resources is not generating the maximum possible output.

Engaging in any activity using any​ resource, even​ time, involves trading off the use of that resource for one or more alternative uses. A. False B. True

B. True

With respect to your grades in your acounting and economics​ classes, a​ one-to-one trade-off means that the opportunity cost of receiving one grade higher in accounting​ (for example, improving from a D to a​ C) is one grade lower in economics​ (falling from a B to a​ C). A. False B. True

B. Truef

Does the richest person in the world face the problem of​ scarcity? A. ​No, because having money means that you do not have to choose between present and future consumption. B. Yes, because even if you have money you will never be able to satisfy all of your wants and must therefore make choices. C. No, because having money means that you can buy whatever you want to buy. D. Yes, because if the rich were to purchase a lot of goods at one time shortages would result.

B. Yes, because even if you have money you will never be able to satisfy all of your wants and must therefore make choices.

A production possibilities curve represents A. all possible combinations of output that could be produced at zero opportunity cost. B. all possible combinations of output that could be produced assuming fixed productive resources and their efficient use. C. all possible combinations of output that could be produced assuming changing technology. D. the notion that greater quantities of all goods may be produced.

B. all possible combinations of output that could be produced assuming fixed productive resources and their efficient use.

Factors of production include A. ​hydrogen, oxygen and carbon. B. land, labor, physical​ capital, human capital and entrepreneurship. C. land, human​ capital, financial​ capital, and technology. D. materials, energy and organization.

B. land, labor, physical​ capital, human capital and entrepreneurship.

Opportunity cost refers to A. the total value of all alternatives. B. the value of the​ next-best alternative. C. the dollar value of the activity in which you choose to engage. D. the intrinsic value of the activity in which you choose to engage.

B. the value of the​ next-best alternative.

During a debate on the floor of the U.S.​ Senate, Senator Creighton​ states, ​"Our nation should not devote so many of its fully employed resources to producing capital goods because we already are not producing enough consumption goods for our​ citizens." Compared with the other labeled points on the diagram to the​ right, the one which could be consistent with the current production combination choice that Senator Creighton believes the nation has made is ________

C

Tim goes to a design academy to become a toy designer. This is an example of A. an increase in labor. B. entrepreneurship. C. an investment in human capital. D. an investment in physical capital.

C. an investment in human capital.

Economic goods are A. unrelated to human wants. B. always tangible goods. C. goods that are scarce. D. equivalent to all goods and services.

C. goods that are scarce.

You and a friend decide to spend​ $100 each on concert tickets. Each of you alternatively could have spent the​ $100 to purchase a​ textbook, a meal at a highly rated local​ restaurant, or several internet movie downloads. As you are on the way to the​ concert, your friend tells you that if she had not bought the concert​ ticket, she would have opted for a restaurant​ meal, and you reply that you otherwise would have downloaded several movies. The relevant opportunity costs for you and your friend of the concert tickets that you purchased are A. a textbook. a meal at a highly rated local​ restaurant, and several internet movie downloads for you and a​ textbook, a meal at a highly rated local​ restaurant, and several internet movie downloads for your friend. B. Any one of the following for you and your​ friend: a meal at a highly rated local​ restaurant, several internet movie downloads or a textbook. C. internet movie downloads for you and a meal at a highly rated local restaurant for your friend. D. $100 for you and​ $100 for your friend.

C. internet movie downloads for you and a meal at a highly rated local restaurant for your friend.

Each individual must make choices because A. needs are more important than wants. B. even if​ one's wants are completely​ satisfied, insufficient time exists to fully enjoy all of them. C. resources are limited and therefore cannot satisfy​ one's many competing wants. D. wants are sometimes mixed up with needs.

C. resources are limited and therefore cannot satisfy​ one's many competing wants.

People have​ ________ wants and​ ________ resources to deal with those wants. A. ​limited; unlimited B. unlimited; unlimited C. unlimited; limited D. limited; limited

C. unlimited; limited

After the concert is over and you and your friend are traveling​ home, you discuss how each of you might otherwise have used the four hours devoted to attending the concert. The four hours could have been used to​ study, to watch a sporting event on​ TV, or to get some extra sleep. Your friend decides that if she had not spent four hours attending the​ concert, she would have chosen to​ study, and you reply that you otherwise would have watched the televised sporting event. The relevant opportunity costs for you and your friend for allocating four hours to attending the concert are A. the values from all of the​ following: watching a sporting event on​ TV, studying for four​ hours, and extra sleep for both you and your friend. B. studying for you and watching a sporting event on TV for your friend. C. watching a sporting event on TV for you and studying for your friend. D. watching a sporting event on TV for you and extra sleep for your friend.

C. watching a sporting event on TV for you and studying for your friend.

During a debate on the floor of the U.S.​ Senate, Senator Creighton​ states, ​"Our nation should not devote so many of its fully employed resources to producing capital goods because we already are not producing enough consumption goods for our​ citizens." In response to Senator​ Creighton's statement, Senator Long​ replies, ​"We must remain at our current production combination if we want to be able to produce more consumption goods in the​ future." Of the labeled points on the diagram to the​ right, the one which could depict the future production combination Senator Long has in mind is _________

D

A production possibilities curve A. shows the possibilities available for increasing the output of one good or service by reducing the amount of another. B. defines the maximum quantity of one good or service that can be​ produced, given that a specific quantity of another is produced. C. represents all possible combinations of maximum outputs that could be​ produced, assuming a fixed amount of productive resources of a given quality. D. All of the above.

D. All of the above.

If you receive a free ticket to a​ concert, what, if​ anything, is your opportunity cost of attending the​ concert? A. The pleasure yielded by the concert cancels any costs.​ Thus, there is no cost of any type. B. Since the ticket was a​ gift, there is no opportunity cost. C. The concept of opportunity cost does not apply to intangibles like concerts. D. The next best activity that​ can't be done while attending the concert.

D. The next best activity that​ can't be done while attending the concert.

The opportunity cost of attending a class at​ 11:00 a.m. will likely differ from the opportunity cost of attending a class at​ 8:00 a.m. because A. a​ student's evaluation of any given set of alternatives is likely to be​ time-sensitive. B. nothing is going on at 8 a.m. C. the number and variety of alternatives at 11 a.m. are likely to differ from those available at 8 a.m. D. both A and C are correct.

D. both A and C are correct.

Many state governments claim a shortage of funds because there are​ "unmet needs." This claim is A. true because with enough money you can eliminate shortages. B. true if most of the people in the state are rich and false if most of the people in the state are poor. C. true because higher taxes can eliminate the​ "unmet needs." D. false because of scarcity.

D. false because of scarcity.

The factor of production that consists of factories and equipment used in​ production, as well as improvements to natural​ resources, is called A. land. B. human capital. C. labor. D. physical capital.

D. physical capital.

Scarcity A. can be eliminated with improvements in technology. B. results from unlimited resources coupled with limited wants. C. is the same thing in economic terminology as a shortage. D. results from unlimited wants coupled with limited resources.

D. results from unlimited wants coupled with limited resources.

What are services?

Mental or physical labor or assistance purchased by consumers. Examples are the assistance of physicians, lawyers, dentists, repair personnel, house-cleaners, educators, retailers, and wholesalers; items purchased or used by consumers that do not have physical characteristics.

What is efficiency?

The case in which a given level of inputs is used to produce the maximum output possible. Alternatively, the situation in which a given output is produced at minimum cost.

What is the law of increasing additional cost?

The fact that the opportunity cost of additional units of a good generally increases as people attempt to produce more of that good. This accounts for the bowed-out shape of the production possibilities curve.

What is technology?

The total pool of applied knowledge concerning how goods and services can be produced

Suppose that in the figure to the​ right, a student currently is allocating her 6 hours of study time each week in such a way that she is earning a B in mathematics and a D in economics. What is the opportunity​ cost, measured in terms of the resulting grade​ change, if this student wishes to reallocate her study time in order to raise her mathematics grade by one​ letter, from a B to an A​? Measured in terms of the resulting grade​ change, the opportunity cost of this student reallocating her study time to raise her mathematics grade from a B to an A is ________ in her economics grade _________.

a fall; from a D to an F

What is scarcity?

a situation in which the ingredients for producing the things that people desire are insufficient to satisfy all wants at a zero price.

what is physical capital?

all manufactured resources, including buildings, equipment, machines, and improvements to land that are used for production

On the graph to the​ right: ​1.) Using the point drawing tool​, plot each of the seven grade combinations. Do not label these points. ​2.) Using the line drawing tool​, draw a line connecting these points to form the​ student's production possibilities curve. Properly label this line. This PPC illustrates ______ opportunity costs.

constant Note: In plotting these points and drawing the line connecting the​ points, you recognized the tradeoff between points earned on economics exams versus points on biology exams. By allocating a unit of study time away from economics towards​ biology, the​ student's economics score falls by 10 points and​ his/her biology score increases by 10 points.

Mary​ Krawiec's total cost is _________ her explicit cost.

higher

Suppose that in the figure to the​ right, a student currently is allocating her 12 hours of study time each week in such a way that she is earning an A in mathematics and an F in economics. If the student desires to boost her economics grade to an​ A, how must she alter the number of hours per week that she studies​ economics? How must she alter the number of hours per week that she studies​ mathematics? If the student desires to boost her economics grade to an​ A, she must ________ the number of hours per week that she studies economics from ________ hours to ________ hours. If the student desires to boost her economics grade to an A, she must ________ the number of hours per week that she studies mathematics from ________ hours to ________ hours.

increase; 0; 12 decrease; 12; 0

If miserable weather on the night of the concert requires you to leave much earlier for the concert hall and greatly extends the time it takes to get home​ afterward, the opportunity cost of attending the concert ________

increases

What are the factors of production?

land, labor, physical capital, human capital, entrepreneurship

The concept of ________ is difficult to define objectively for every person.​ Consequently, we simply consider every​ person's wants to be unlimited. In a world of ​scarcity, satisfaction of one want necessarily means non-satisfaction of one or more other wants.

need

Another way to look at opportunity cost is the​ trade-off that occurs when one activity is undertaken rather than the _________ alternative activity.

next-best

A ________ curve graphically shows the​ trade-off that occurs when more of one output is obtained at the sacrifice of another. This curve is a graphical representation​ of, among other​ things, opportunity cost.

production possibilities

________ is the situation in which human wants always exceed what can be produced with the limited resources and time that nature makes available.

scarcity

what is human capital?

the accumulated training and education of workers

what is entrepreneurship?

the component of human resources that performs the functions of raising capital; organizing, managing, and assembling other factors of production; making basic business policy decisions and taking risks.

What is opportunity cost?

the highest-valued, next-best alternative that must be sacrificed to obtain something or to satisfy a want.

what is land?

the natural resources that are available from nature. land as a resource includes location, original fertility and mineral deposits, topography, climate, water, and vegetation

Opportunity cost is best defined as _________ alternative(s) that must be sacrificed to obtain something or to satisfy a want.

the next best

On the graph to the​ right: ​1.) Using the point drawing tool​, plot the four yellow highlighted grade combinations. Do not label these points. ​2.) Using the​ 4-point curved line drawing tool​, draw a curve through these points to form the​ student's PPC. Properly label this curve. Carefully follow the instructions​ above, and only draw the required objects. Using your graph​, does the PPC illustrate the law of increasing additional​ cost? _________ Using the data in the table above​, the opportunity cost to this student for the additional amount of study time on economics required to move her grade from 60 to 70 is ________ biology points. Using the data in the table above​, the opportunity cost to this student for the additional amount of study time on economics required to move her grade from 90 to 100 is ________ biology points

yes; 8 20