Quiz 1: Choice in a world of scarcity

Suppose an economy is faced with the production possibilities table shown in Exhibit 2-10. The second unit of capital goods production will cost ____ units of consumption goods, and the third unit of capital goods production will cost ____ units of consumption goods. 4; 6 25; 23 23; 19 1; 23 2; 19

4; 6

In Exhibit 2-16, which of the following points on the production possibilities curve are full-employment production points? A. A, B, C, D B. A, B, C, D, U C. E, U, W D. B, C, D, U E. A, B, C, U

A. A, B, C, D

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

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

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? A. The boat rental was worth the additional fish catch, regardless how little fish we left behind. B. Renting of recreational vehicles for use in national parks is responsive to the price charged, but not to concerns of noise pollution. C. Our time was very valuable at that moment, but we stopped to put out the fire before it spread.

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

Identify the positive statement(s) among the following statement(s). A. The federal government budget deficit reached 4% of GDP last year. B. The federal government spending is greater than revenue to the Treasury. C. The federal government spends too much.

A. The federal government budget deficit reached 4% of GDP last year. B. The federal government spending is greater than revenue to the Treasury.

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

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

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

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

The highest valued alternative that must be given up in order to choose an option is called the: A. opportunity cost. B. utility cost. C. scarcity expense. D. disutility option.

A. opportunity cost.

Of factors which affect any economy's production potential, the best two listed below are: A. resources and technology. B. prices and outputs. C. wages and prices. D. taxes and prices. E. resources and prices.

A. resources and technology.

** Marginal benefit is A. the additional benefit that one more unit of something will provide. B. the change in the total benefit that one more unit of something will provide. C. the average benefit that each unit of something provides.

A. the additional benefit that one more unit of something will provide. B. the change in the total benefit that one more unit of something will provide.

**The opportunity cost of an economic decision is: A. the best alternative that was sacrificed. B. the amount of money needed to implement the decision. C. any land, labor, and capital that are wasted. D. all options that were lost due to scarcity.

A. the best alternative that was sacrificed.

Budget constraints impose scarcity , and are based upon A. the prices of the items purchased. B. the limitation of the budget. C. how much utility one more unit of a good will provide.

A. the prices of the items purchased. B. the limitation of the budget.

Ralph wants to buy some milk and a box of cereal. If Ralph buys 2 quarts of milk at $1 per quart, the box of cereal costs 75 cents. If he buys 3 quarts of milk at $1 per quart, the box of cereal is free. For Ralph, the marginal cost of the third quart of milk is: A. zero. B. 25 cents. C. 75 cents. D. $1.

B. 25 cents.

A non-linear production possibilities model assumes that A. some resources are specialized to (more productive in) one use than another. B. with rational resource allocation decisions, the opportunity cost of producing more will rise. C. technology can advance

B. with rational resource allocation decisions, the opportunity cost of producing more will rise. C. technology can advance

** In order to satisfy as many wants as possible, it is necessary to achieve PRODUCTIVE efficiency, A. Since otherwise resources are idle B. Since it would be impossible to produce more of one thing without producing less of another C. Since otherwise output may go to where it is less valued

C Since otherwise output may go to where it is less valued

How does a production possibilities model differ from a budget constraint model? A. The production possibilities model depicts purchase choices B. The budget constraint model demonstrates diminishing returns C. The production possibilities model demonstrates diminishing returns

C The production possibilities model demonstrates diminishing returns

** A rock star intentionally sets her ticket prices below what would be necessary to sell out her shows. How might this be justified by a manager whose goal is to maximize long-term profit? A. The revenue sacrificed will help to make the audience more diverse B. The revenue sacrifices represents a very small share of the show's revenues C. The revenue sacrificed is worth the boost it gives to her image as lines form for tickets

C The revenue sacrificed is worth the boost it gives to her image as lines form for tickets

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? A. Is it worth paying 5 cents per gallon to have a city water system? B. Can people afford paying more than twice as much for the same amount of water? C. Are the additional benefits of cleaner water worth paying 3 more cents per gallon?

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

Down at the water plant, there is a proposal for a new filtration system to serve the entire city's needs. The cost of the new system will double water rates. A rational city council should deliberate which following question on behalf of the city's residents? A. Is it worth paying twice as much for the same amount of water? B. Are the total benefits of having a city water supply greater than the total cost? C. Are the benefits of cleaner water greater than the additional costs of the new filtration system?

C. Are the benefits of cleaner water greater than the additional costs of the new filtration system?

In Exhibit 2-15, what can we conclude about point Q? A. It is efficient. B. It is inefficient. C. It is unattainable. D. It gives maximum future growth. E. It shows underemployed resources.

C. It is unattainable.

Which of the following statements are positive? A. There is a limit to the income each year to which the FICA tax applies, but that is fair, since there is a limit to social security benefits. B. I am absolutely positive that there is a better way. C. Social security benefits are not taxed.

C. Social security benefits are not taxed.

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? A. The money will be spent efficiently to cure cancer. B. The funds dedicated to this purpose represent a very small share of profits. C. The money spent is worth the boost it gives to corporate image.

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

**Which of the following would be least likely to cause the production possibilities curve to shift outward? A. a decreased desire for leisure by workers in the economy. B. an invention that requires fewer resources to produce a good. C. a shift in consumer preferences that causes expansion in the output of one product and a decline in output of other products. D. an expansion in the man-made productive resources available to the economy as the result of a high rate of investment.

C. a shift in consumer preferences that causes expansion in the output of one product and a decline in output of other products.

A positive statement is A. a value judgement. B. based upon what can be demonstrated to be true. C. can be shown to be correct or incorrect.

C. can be shown to be correct or incorrect.

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 A. continue with the project provided that the additional electricity is worth more than $32 million. B. continue with the project provided that the additional electricity is worth more than $20 million. C. continue with the project provided that the additional electricity is worth more than $12 million.

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

A positive statement is always A. based upon what ought to be. B. correct. C. devoid of value judgements.

C. devoid of value judgements.

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

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

The theory of rational behavior A. implies that people will always take the time to make perfectly informed decisions. B. assumes that people will behave in the best interest of society as a whole. C. is an assumption that economists make to have a useful model for how decisions are made.

C. is an assumption that economists make to have a useful model for how decisions are made.

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, A. it is best to shut down the bed & breakfast since it is taking a loss. B. it is best to keep the bed & breakfast operating because it is profitable. C. it is best to ignore sunk cost and keep the bed & breakfast operating.

C. 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 A. opportunity cost. B. total benefit. C. marginal benefit.

C. marginal benefit.

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

C. production of different types will compete for limited resources.

The production possibilities model shows an inverse relationship between the amount of one thing that can be produced and the amount of something else because A. of diminishing returns. B. the opportunity cost of producing more of something will fall. C. production of different types will compete for limited resources.

C. production of different types will compete for limited resources.

In order to satisfy as many wants as possible, it is necessary to achieve ALLOCATIVE efficiency, A. since otherwise resources are idle. B. since it would be impossible to produce more of one thing without producing less of another. C. since otherwise output may go to where it is less valued.

C. since otherwise output may go to where it is less valued.

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

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

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

C. sunk costs.

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

C. sunk costs.

Marginal cost is A. on average, what each unit of output costs to produce or obtain. B. the only thing necessary to consider for making rational decisions. C. the cost of obtaining or producing one more unit of something.

C. the cost of obtaining or producing one more unit of something.

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 A. the total benefits from all crop-dustings is greater than the the total cost of all crop-dustings. B. the additional crops grown from one more crop-dusting (the marginal product) is rising. C. the marginal benefit is greater than the marginal cost of an additional crop-dusting.

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

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

C. the production possibilities model demonstrates diminishing returns.

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

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

Normative statements are based upon A. conjecture. B. facts. C. value judgements.

C. value judgements.

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

C. 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 A. $500 per month monetary cost but a $1500 per month opportunity cost. B. $1000 per month monetary and opportunity cost. C. zero monetary cost but a $1000 per month opportunity cost.

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

From the information in Exhibit 2-16, which of the following points on the production possibilities curve are attainable with the resources and technology currently available? A. A, B, C, E, U B. A, B, C, D, W C. E, U, W D. B, C, D, U E. A, B, C, E

D. B, C, D, U

**Movement along this production possibilities curve shown in Exhibit 2-9 indicates: A. that labor is not equally productive or homogeneous (nonhomogeneous). B. decreasing opportunity costs. C. all inputs are homogeneous. D. all of these.

D. all of these.

An efficient economy: A. uses available resources fully. B. uses the best division of labor. C. produces an output combination at some point along the production possibility curve. D. all of these.

D. all of these.

A source of economic growth is: A. unemployment. B. inefficiency. C. less resources. D. greater entrepreneurship.

D. greater entrepreneurship.

Other things being equal, a decreased supply of natural resources would be represented on a production possibilities curve by a(n): A. movement off the curve to a point inside the curve. B. movement down along the curve. C. movement up along the curve. D. inward shift of the entire curve.

D. inward shift of the entire curve.

In Exhibit 2-2, the opportunity cost of coffee when moving from A to B is: A. the same as moving from A to C. B. the same as moving from A to D. C. the same as moving from B to D. D. the same as moving from B to C. E. it is not possible to determine.

D. the same as moving from B to C.

**In Exhibit 2-15, the economy will experience the most future economic growth if it chooses what point now? J. K. M. N. P.

K