Exam 2: Choice in a World of Scarcity

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.

Gomer decides to spend an hour playing basketball rather than studying. His opportunity cost is:

Economists refer to this pattern, the ___________________________________, which means that as a person receives more of a good, the additional or marginal utility from each additional unit of the good declines.

Explain the Law of Diminishing Returns and illustrate with a relevant example.

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.

Marginal thinking is best demonstrated by:

Draw a picture of a production possibilities frontier curve. Identify each axis as measuring either guns or butter. Select and label Point A, which is beyond the economy's ability to produce; Point B, which represents an inefficient level of production; Point C, an efficient combination of output in which more guns are produced than units of butter; and Point D, an efficient production point in which more units of butter are produced than guns. Be sure to label each clearly.

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.

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.

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

When most people want to know the cost of an item or a service, they look for a price tag. When economists want to determine cost, they go one step further. They use the idea of opportunity cost. Explain the concept of opportunity cost and illustrate with an example.

Define the term "sunk costs" and illustrate with an example.

The opportunity cost of an action:

Most real-world choices aren't about getting all of one thing or another, instead, most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good.

Attending college is a case where the ________________ exceeds the monetary cost.

Define Productive Efficiency and Allocative Efficiency.