ECON-Choice in a World of Scarcity

Scarcity is imposed on individual households in the form of

1. limited income and the prices of the goods that a person may purchase.

2. Our ability to purchase products is limited by our income and the prices that we have to pay

The slope of a budget constraint line is influenced by

1. how much one product costs compared to the other.

   2. If the 2 products considered have the same price, the slope will be -1 but is the price of product 1 is twice the price of product 2, the slope will be -2

Because of ________ if a city government decides to spend money on beautifying its downtown and attracting tourism to its city when no money has been devoted to those efforts before, then gains in tourism may be significant.

1. the law of diminishing returns

2. When adding one unit of resource, the gains in production are greater when you have low existing production. As you add more and more resources, the gains in production start to decline.

Two countries are trying to decide which product should have an increased production. Both Canada and Costa Rica produce coffee and corn, but it is easier for Canada to raise corn than grow coffee. Costa Rica easily grows coffee, but has a more difficult time growing corn. In comparison with Canada, Costa Rica has

1. a comparative advantage with coffee.

2. If a country has a lower opportunity cost to produce a good, then it has a comparative advantage in that good.

   
   

The theory of rational behavior

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

2. Rational behavior can include some concern for others.

   
   

Indi and Indrani are sisters who own a software development company. Demand has been increasing for their products and services and the sisters are contemplating whether to open up a satellite office in Austin. They estimate it would add $7 million in expenses and a profit of $12.5 million in total over the next 5 years (all other things equal). Indi and Indrani decide

1. to open a new office because the expected marginal benefit ($12.5 million over 5 years) is greater than the estimated marginal cost ($7 million).

2. Comparing marginal cost to benefits is a rational way to make decisions.

   
   

A local bank sponsors a charity run that raises funds for a non-profit building wells and schools in Mali, Africa. How would the use of the bank’s funds for this fundraiser be justified when its goal is to maximize profit?

1. The money spent is worth the public relations boost it gives to the bank’s image.

2. This answers focuses on the benefits to the bank.

Which of the following statements is normative?

1. Congress gives too many tax breaks to corporations.

2. This states facts .

   
   

A keynote speaker was known for his many speaking engagements, but now he has limited time and a rational mind. Even he would eventually start to turn down speaking engagement when, by his judgement

1. the marginal cost is greater than the marginal benefit of the next speaking engagement.

2. When cost becomes greater than benefit, the next speaking engagement should not be accepted.

   
   

Which of the following statements is normative?

1. Congress gives too many tax breaks to corporations.

2. This statement reflects opinion rather than plain facts.

   
   

A local bank sponsors a charity run that raises funds for a non-profit building wells and schools in Mali, Africa. How would the use of the bank’s funds for this fundraiser be justified when its goal is to maximize profit?

1. The money spent is worth the public relations boost it gives to the bank’s image.

2. This answers focuses on the benefits to the bank.

Hal and Gavin are siblings who own a mattress recycling company. Demand has been increasing for their services and the brothers are contemplating whether to open up an additional mattress drop off site in the downtown area. They estimate it would add $1 million in expenses with their profit increasing by $150 thousand each year for the next 5 years (all other things equal). Hal and Gavin decide

1. to not open a mattress drop off site downtown because the marginal costs proved to be too high.

2. If the cost of the new site is more than the added revenue for the business, then the project should be abandoned.

Marcus is considering which college major to choose. In taking a rational approach, Marcus should consider

1. Economically rational decision requires considering cost and benefits for oneself and attempting to maximize benefits

Normative statements are based upon

1. value judgments.

2. Normative statements reflect values and opinions.

A keynote speaker was known for his many speaking engagements, but now he has limited time and a rational mind. Even he would eventually start to turn down speaking engagement when, by his judgement

1. the marginal cost is greater than the marginal benefit of the next speaking engagement.

2. When cost becomes greater than benefit, the next speaking engagement should not be accepted.