Choice in a World of Scarcity

Jean Paul is a second year university architecture student on a very tight budget. Although a scholarship covers his tuition, books, dormitory and meals, he must budget tightly each week for his school supplies, entertainment, and clothing. His roommate is offering him a drafting table for a remarkably low price and allowing him to make payments over 4 weeks, but this will pinch his budget. However, having a drafting table in his room will save him the time and energy of using the drafting table of a friend who lives off campus, and it will give him more flexibility for completing his assignments.
Jean Paul’s weekly choice of allotting his budget to a varying combination of school supplies, entertainment, clothing, and other specialty purchases such as the drafting table represent his _________

1. opportunity set.
   
2. utility.
   
3. law of diminishing marginal utility.
   
4. sunk costs.
   

Sandra took an expensive cruise. In order to pay for it, she stopped her gym membership.

1. Marginal analysis
   
2. Law of diminishing marginal utility
   
3. Sunk costs
   
4. Opportunity cost
   

Elijah’s car needs expensive repairs. When Elijah was deciding whether to do them, he remembered that the car had cost him $20,000.

1. Marginal analysis
   
2. Law of diminishing marginal utility
   
3. Sunk costs
   
4. Opportunity cost
   

Reba is deciding whether she should eat an additional half of a sandwich.

1. Marginal analysis
   
2. Law of diminishing marginal utility
   
3. Sunk costs
   
4. Opportunity cost
   

Mario’s restaurant has a budget for advertising each month. Each additional ad brings in less new customers than the previous ad.

1. Marginal analysis
   
2. Law of diminishing marginal utility
   
3. Sunk costs
   
4. Opportunity cost
   

Opportunity costs involve what factor besides price?

1. Time
   
2. Utility
   
3. Slope
   
4. Tradeoff
   

Budget constraint is to the individual, as ________ is to society.

1. allocation efficiency
   
2. comparative advantage
   
3. law of diminishing returns
   
4. production possibilities frontier
   

Which factor corresponds to the curving slope of a production possibilities frontier (PPF) graph?

1. Allocation efficiency
   
2. Comparative advantage
   
3. Utility
   
4. Law of diminishing returns
   

Sally has determined that hiring a fifth worker will increase her production of roses in her greenhouse less than the cost of hiring the worker.

1. Productive efficiency
   
2. Allocative efficiency
   
3. Comparative advantage
   
4. Law of diminishing returns
   

Due to its climate, India has a lower opportunity cost for producing rice than the United States.

1. Productive efficiency
   
2. Allocative efficiency
   
3. Comparative advantage
   
4. Law of diminishing returns
   

The amount of gas being produced is equal to the amount of gas consumers want.

1. Productive efficiency
   
2. Allocative efficiency
   
3. Comparative advantage
   
4. Law of diminishing returns
   

A country is producing the maximum amount of education given its fixed amount of resources to produce education.

1. Productive efficiency
   
2. Allocative efficiency
   
3. Comparative advantage
   
4. Law of diminishing returns
   

Which scenario exemplifies the concept of the invisible hand?

1. The combination of approving the new museum and postponing expansion of the airport has been dictated by the city’s voters.
   
2. The city cannot make improvements to its infrastructure without making cuts in another area.
   
3. Susan feels that despite the economic hardship it will mean to her, all of her children should go to college to achieve their very best.
   
4. When Carl purchases local products because they are cheaper, he is not thinking of the advantage it has on his area’s manufacturing sector.
   

Which are normative statements? (Select all that apply.)

1. Health care should be available for everyone in the United States because it is the right thing to do.
   
2. If the manufacturing plant can add a swing shift, production could increase.
   
3. The expansion of the shopping mall will attract more shoppers.
   
4. The development of a new freeway is not feasible, given the existing number of commuters.
   
5. Although the benefits of the bus tunnel do not immediately exceed the costs, it can be used for a future subway when growth dictates it.
   

Which are factors that both budget constraint diagrams and production possibilities frontier diagrams highlight? (Select all that apply.)

1. Tradeoffs
   
2. Positive statements
   
3. Efficiency
   
4. Scarcity
   
5. Opportunity cost
   
6. Utility
   
7. Law of diminishing returns
   
8. Normative statements
   

The marginal benefit of a slice of pizza is the:

1. total amount that a consumer is willing to pay for a whole pizza, divided by the number of slices
   
2. difference between the value of the slice to the consumer and the price of the slice.
   
3. maximum amount that a consumer is willing to pay for the slice.
   
4. price of the slice of pizza
   

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

1. marginal utility
   
2. sunk costs
   
3. marginal analysis
   
4. budget constraints
   

The model that economists use for illustrating the process of individual choice in a situation of scarcity is the budget constraint, sometimes also called the _______________, a diagram which shows what choices are possible.

1. opportunity set
   
2. consumption choice
   
3. time value of money
   
4. risk premium
   

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.

1. Opportunity cost
   
2. productive efficiency
   
3. budget constraint
   
4. production possibilities frontier
   

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.

1. personal preference
   
2. utility level
   
3. budget constraint
   
4. opportunity set
   

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 _____________________.

1. allocative efficiency
   
2. the production possibilities frontier
   
3. trade-offs
   
4. scarcity
   

Scarcity implies that:

1. consumers would be willing to purchase the same quantity of a good at a higher price.
   
2. it is impossible to completely fulfill the unlimited human desire for goods and services with the limited resources available.
   
3. at the current market price, consumers are willing to purchase more of a good than suppliers are willing to produce.
   
4. consumers are too poor to afford the goods and services available.
   

Why is there scarcity?

1. Because the opportunity set determines this.
   
2. Because theory dictates it.
   
3. Because our unlimited wants exceed our limited resources.
   
4. Because human wants are limited.
   

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

1. negative statements
   
2. positive statements
   
3. tradeoffs
   
4. utilitarianism
   

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

1. normative statement
   
2. budget constraint
   
3. trade-off
   
4. opportunity cost
   

The law of ____________________________ explains why people and societies rarely make all-or-nothing choices.

1. consumption
   
2. marginal analysis
   
3. diminishing marginal utility
   
4. 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.

1. utility
   
2. marginal benefit
   
3. opportunity cost
   
4. sunk costs
   

Marginal thinking is best demonstrated by:

1. 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.
   
2. deciding to never purchase a coat made with animal skins or furs
   
3. acquiring the information relevant to a choice before making that choice
   
4. measuring all of the costs of a meal against all of the benefits when deciding whether to order a second milkshake
   

Scarcity exists because of:

1. the market mechanism.
   
2. specialization and division of labor.
   
3. the allocation of goods by prices.
   
4. unlimited wants and limited resources.
   

The opportunity cost of an action:

1. can be determined by considering both the benefits that flow from as well as the monetary costs incurred as a result of the action.
   
2. can be determined by adding up the bills incurred as a result of the action.
   
3. can be objectively determined only by economists.
   
4. is a subjective valuation that can be determined only by the individual who chooses the action.
   

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.

1. budget constraint
   
2. opportunity set
   
3. utility
   
4. production possibilities frontier