Title: The Cost of Choices
Course: TEST Course

Q: Budget constraints impose scarcity. They are based upon
- how much utility one more unit of a good will provide.
- the accessibility of the items purchased.
- the prices of the items purchased.
A: the prices of the items purchased.

Q: Scarcity is imposed on individual households in the form of income and
- sunk costs.
- utility.
- the prices of the goods that a person may purchase.
A: the prices of the goods that a person may purchase.

Q: 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,
- it is best to shut down the bed & breakfast since it is taking a loss.
- it is best to keep the bed & breakfast operating because it is profitable.
- it is best to ignore sunk costs and keep the bed & breakfast operating.
A: it is best to ignore sunk costs and keep the bed & breakfast operating.

Q: An Uber driver faces costs for driving that include sunk costs like insurance that contribute to the average cost per mile of $.50. Yet when a rider offers to pay less than that for a ride, the driver agrees because
- the driver is irrational; this decision will cause a loss.
- the driver needs to cover all sunk costs to be better off by accepting the offer.
- sunk costs like auto insurance (in this case) do not increase as driving increases.
A: sunk costs like auto insurance (in this case) do not increase as driving increases.

Q: Maren is planning a cruise to the Caribbeans and has a budget for new evening wear of $500. She plans to purchase new shoes and dresses. The average price for a pair of shoes is $50 while the average price for an evening dress is $100. Her current budget constraint is pictured in the graph. Maren catches an end of season sale on dresses and the average price of dresses falls to $50. As a result:
- Stephanie’s new budget constraint will be flatter.
- The opportunity cost of each additional dress increases as a result of the price reduction.
- Stephanie will be able to afford more dresses for a given number of shoes.
A: Stephanie will be able to afford more dresses for a given number of shoes.

Q: Based on the graph of Maren’s budget constraint for dresses and shoes, what accurately describes the slope of her budget constraint?
- It is negative because dresses are more expensive than shoes
- It is positive because Maren still has plenty of money and is able to afford both dresses and shoes.
- It is negative because of scarcity and the limited amount of money available to Maren.
A: It is negative because of scarcity and the limited amount of money available to Maren.

Q: Julie’s entertainment budget for the next six months is $150 per month. She enjoys watching the latest movies and loves the ballet. A movie ticket costs $15 while a ballet ticket costs $35. This month Julie already attended one ballet show and three movies. If Julie decides she would rather see ballet shows for the remainder of this month, how many ballet shows can she attend and stay within her budget?
- Four ballet shows
- Three ballet shows.
- Two ballet shows.
A: Two ballet shows.

Q: Juan has a monthly budget of $100 to spend on entertainment. A concert ticket costs $20 while a movie ticket costs $10. This month Juan has attended one concert and 5 movies so far. If Juan decides to only go to movies for the rest of the month. How many movie tickets can he afford to purchase and stay within his budget?
- Thirty tickets.
- One and a half tickets.
- Three tickets.
A: Three tickets.

Q: 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
- $500 per month monetary cost but a $1500 per month opportunity cost.
- $1000 per month monetary and opportunity cost.
- zero monetary cost but a $1000 per month opportunity cost.
A: zero monetary cost but a $1000 per month opportunity cost.

Q: The house that Jamalla inherited from her mother can rent for $2000/month, but Jeanne decides to allow her brother to stay there for only half of that. This decision carried with it a
- $1000 per month monetary cost but a $2000 per month opportunity cost.
- $1000 per month monetary and $1000 per month opportunity cost.
- zero monetary cost but a $1000 per month opportunity cost.
A: zero monetary cost but a $1000 per month opportunity cost.

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

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

Q: Denasia is planning a cruise to the Bahamas and has a budget for new evening wear of $400. The average price for a pair of shoes is $50 while the average price for an evening dress is $100. If Denasia already has 3 dresses purchased for her cruise, what is the opportunity cost of buying one more dress?
- 1 pair of shoes
- 2 dresses
- 2 pairs of shoes
A: 2 pairs of shoes

Q: Danielle is planning a cruise to Mexico and has a budget for new clothes of $300. The average price for a pair of shoes is $50 while the average price for a suit is $100. Danielle already has 4 pairs of shoes purchased for her cruise, what is the opportunity cost of buying two more pairs of shoes?
- 1 pair of shoes
- 2 dresses
- 1 dress
A: 1 dress

Q: Kayden decided to attend college and gain a degree in accounting. He is now starting his degree. The yearly cost of tuition is $10,000 and he left his auto mechanic shop management job giving up a $32,000 a year to attend college. Kayden’s decision resulted in
- paying $10,000 in opportunity cost per year to attend college.
- an opportunity cost to attend college of $22,000 per year.
- an opportunity cost to attend college of $42,000 per year.
A: an opportunity cost to attend college of $42,000 per year.

Q: Dawnell is a skilled dancer. She is currently teaching modern dance full time for three high schools and makes $44,000 a year. She is now giving up her work and joining a touring dance company for the next two years. She will make $24,000 a year dancing, but gain much more in experience and connections. Dawnell’s decision will result in
- a two year opportunity cost of $88,000 after leaving her teaching position.
- a one year opportunity cost of $24,000 after leaving her teaching position.
- a two year opportunity cost of $40,000 after leaving her teaching position.
A: a two year opportunity cost of $40,000 after leaving her teaching position.