Title: Choice in a World of Scarcity
Course: Macro Quiz Test

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.

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

Q: The production possibilities model illustrates an inverse relationship between two goods or services because
- of diminishing returns.
- the opportunity cost of producing more of something will rise.
- production of different types will compete for limited resources.
A: production of different types will compete for limited resources.

Q: 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.
- the law of diminishing returns
- the opportunity cost of the production possibility tradeoff
- the production possibility frontier
A: the production possibility frontier

Q: If a city government spends a good deal of money on crime prevention and also on infrastructure maintenance, then spending even more money on crime prevention should result in
- significant gains in crime prevention.
- significant gains in infrastructure maintenance.
- relatively small gains in crime prevention.
A: relatively small gains in crime prevention.

Q: Suppose that there are only two types of output in a country: nuclear missiles and consumer goods. All else being constant, as the nation produces more missiles,
- every additional missile will increase consumer goods production by more and more.
- the opportunity cost of consumer wants being satisfied will diminish.
- the greater the opportunity cost will be of satisfying consumer wants.
A: the greater the opportunity cost will be of satisfying consumer wants.

Q: Assuming there are only two types of outputs in a country: consumer goods and nuclear missiles. All else being constant, as the nation produces more missiles,
- the more likely it is to satisfy all consumer wants.
- the opportunity cost of consumer wants being satisfied will diminish.
- every additional missile will reduce consumer goods production by more and more.
A: every additional missile will reduce consumer goods production by more and more.

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

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

Q: Consider the Production Possibility Frontier for country X producing 2 groups of goods, MP3 players and watches. The opportunity cost of one additional watch is
- Greater at C than at B
- Equal at B and C
- Greater at B than at C
A: Greater at B than at C

Q: Consider the Production Possibility Frontier for country X producing 2 groups of goods, MP3 players and watches. The opportunity cost of moving from the combination of MP3 players and watches B to C is
- 5 MP3 players
- 4 watches.
- 2 watches.
A: 2 watches.

Q: In order to satisfy as many wants as possible, it is necessary to achieve productive efficiency
- because otherwise output may go to where it is less valued.
- because producing more of one thing also leads to producing more of another.
- because otherwise resources are idle.
A: because otherwise resources are idle.

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

Q: Consider the graph of the production possibility frontier for country Z below. A combination of clothing and cell phones that would meet the productive efficiency would be:
- F
- G
- E
A: E

Q: A combination of clothing and cell phones that would meet the allocative efficiency would be:
- combination G because it represents the combination with the highest number of cell phones and clothing.
- combinations B or C because they represent a balanced quantity of cell phones and clothing.
- any combination on the production possibilities frontier that brings the highest level of satisfaction to the people in the economy.
A: any combination on the production possibilities frontier that brings the highest level of satisfaction to the people in the economy.

Q: Consider the graph of the production possibility frontier for country X. What is a combination of MP3 players and watches that would be inefficient production for country X?
- A
- E
- F
A: F

Q: Consider the graph of the production possibility frontier for country X. What would be a combination of watches and MP3 players that would meet the allocative efficiency of a country?
- Point G combination because it represents the combination with the highest number of watches and MP3 players.
- Combinations C or D because they represent a balanced quantity of watches and MP3 players.
- Any combination on the production possibilities frontier that brings the highest level of satisfaction to meet the needs of the people in the economy.
A: Any combination on the production possibilities frontier that brings the highest level of satisfaction to meet the needs of the people in the economy.

Q: 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 Costa Rica, Canada has
- the opportunity to increase their coffee production to better compete with Costa Rica.
- the climate to create richer tasting coffee than Costa Rica.
- a comparative advantage with corn.
A: a comparative advantage with corn.

Q: 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
- the opportunity to increase their corn production to better compete with Canada.
- the climate to grow larger corn plants than Canada.
- a comparative advantage with coffee.
A: a comparative advantage with coffee.

Q: Making an economically rational decision requires
- always considering the long-run.
- considering the impact of one’s decisions on society.
- weighing prospective benefits and costs to oneself.
A: weighing prospective benefits and costs to oneself.

Q: Making an economically rational decision requires
- equal consideration for your own and others’ welfare.
- always considering the long-run.
- considering the prospective benefits and costs to oneself.
A: considering the prospective benefits and costs to oneself.

Q: The theory of rational behavior
- implies that people will always know exactly what they are buying.
- assumes that people will always try to consider what is best for society.
- is an assumption that economists make to have a useful model for how decisions are made.
A: is an assumption that economists make to have a useful model for how decisions are made.

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

Q: When choosing a college major in a rational way, Minty should consider
- the monetary cost of the college degree is all Minty has to consider.
- minimizing the length of time it will take to complete the degree.
- the cost of the degree and the benefit each degree would bring.
A: the cost of the degree and the benefit each degree would bring.

Q: Marcus is considering which college major to choose. In taking a rational approach, Marcus should consider
- soley the monetary cost of the college degree is all Marcus needs to consider.
- minimizing the length of time it will take to complete the degree.
- the benefit each major would bring and the cost of the degree.
A: the benefit each major would bring and the cost of the degree.

Q: Ayden is the sole proprietor of a shoe repair shop in Atlanta. His business has been increasing for five years and he is now considering opening a second repair shop downtown. Ayden is putting together a plan, estimating costs, projecting potential revenue and analyzing the costs and benefits of a second shop. Ayden is behaving rationally because
- a second shop is the optimal decision.
- he is considering not only his own interests, but those of the competition and the general community as well.
- his decision will be based on his self interest.
A: his decision will be based on his self interest.

Q: Khloe is the owner of a wellness center in Los Angeles. Her business has been growing over three years and she is now considering expanding her business by adding a healthy cafe in her center. Khloe is analyzing the estimated costs, projected potential revenue and costs and benefits of a cafe. Khloe is behaving rationally because
- adding a cafe is the optimal decision.
- she is considering not only her own interests, but those of the competition and community as well.
- her decision will be based on her self interest.
A: her decision will be based on her self interest.

Q: It is said that the rational consumer will act according to his or her 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?
- Our time was very valuable at that moment, but we stopped to help the stranger anyway.
- Even though the fish were big enough to eat, the man threw them back in the ocean.
- The boat rental was worth the additional fish caught, regardless of how little fish we left behind.
A: The boat rental was worth the additional fish caught, regardless of how little fish we left behind.

Q: It is said that the rational consumer will act according to his or her 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?
- Our time was very valuable at that moment, but we stopped to put out the fire before it spread.
- The rental of recreational vehicles for use in national parks is responsive to concerns of noise pollution.
- The boat rental was worth the additional fish caught, regardless of how little fish we left behind.
A: The boat rental was worth the additional fish caught, regardless of how little fish we left behind.

Q: 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?
- The revenue sacrificed will help to make the audience more diverse.
- The revenue sacrificed represents a very small share of the show’s revenues.
- The revenue sacrificed is worth the boost it gives to her image as lines form for tickets.
A: The revenue sacrificed is worth the boost it gives to her image as lines form for tickets.

Q: A restaurant chain sponsors a charity that provides support to the parents of children being treated for cancer. How would the use of company funds for this purpose be justified by a business whose goal is to maximize profit?
- The money will be spent efficiently to cure cancer.
- The funds dedicated to this purpose represent a very small share of profits.
- The money spent is worth the boost it gives to corporate image.
A: The money spent is worth the boost it gives to corporate image.

Q: Self-interest is not necessarily selfish, some say. In fact, self-interest likely includes an individual’s consideration for
- strangers.
- humankind as a whole.
- close friends and family.
A: close friends and family.

Q: Self-interest can include more than a concern for oneself. To the extent that the happiness of others contributes significantly to the our own happiness, actions taken in our own self-interest may have benefits for
- strangers.
- the economy.
- close friends and family.
A: close friends and family.

Q: A company starts a technology organization dedicated to training high school students in the use of the latest program languages. How can the company justify creating and funding such an organization since it is not about its primary products?
- The funds spent on this tech organization will improve the grades of high schoolers and make their schools more effective.
- The funds spent on the tech organization will increase the number of qualified tech people in the society and community.
- The money spent will boost the company’s image and create potential employees with needed skills.
A: The money spent will boost the company’s image and create potential employees with needed skills.

Q: 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?
- The money will be well spent to build much needed well’s and schools.
- The bank’s funds utilized to this sponsorship is a very small share of profits.
- The money spent is worth the public relations boost it gives to the bank’s image.
A: The money spent is worth the public relations boost it gives to the bank’s image.

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

Q: To make an economically rational decision, marginal cost should be compared to
- opportunity cost.
- total benefit.
- marginal benefit.
A: marginal benefit.

Q: Which is a true statement about marginal benefit?
- The amount of benefit a person receives from a good or service remains constant.
- It is the difference (or change) in cost of a different choice.
- To an individual, one good may have a larger marginal benefit than than another.
A: To an individual, one good may have a larger marginal benefit than than another.

Q: Which is a true statement about marginal cost?
- The amount of benefit a person receives from a good or service remains constant.
- It is the difference (or change) in what you receive from a different choice.
- It is the difference (or change) in cost of a different choice.
A: It is the difference (or change) in cost of a different choice.

Q: Willa and Westley are siblings who built a hair salon business from the ground up. They are now contemplating opening an additional salon location. The estimate to open an additional salon would mean adding $1 million in expenses with their profit increasing by $400,000 each year for the next 5 years (all other things equal). Willa and Westley decide
- to open a second salon because the marginal cost of the new salon is low compared to other similar projects.
- to not open a new salon because the marginal costs prove to be too high.
- to take on the new salon because the expected marginal benefit ($2 million over 5 years) is greater than the estimated marginal cost ($1 million).
A: to take on the new salon because the expected marginal benefit ($2 million over 5 years) is greater than the estimated marginal cost ($1 million).

Q: 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 with their profit increasing by $2.5 million each year for the next 5 years (all other things equal). Indi and Indrani decide
- to open an Austin office because the marginal cost of the new office is low compared to other similar projects.
- to not open a new office because the marginal costs prove to be too high.
- to open an new office because the expected marginal benefit ($12.5 million over 5 years) is greater than the estimated marginal cost ($7 million).
A: to open an new office because the expected marginal benefit ($12.5 million over 5 years) is greater than the estimated marginal cost ($7 million).

Q: Darian and Ivan have been friends since college. They started a limousine rental business from scratch. They are now contemplating opening their business in Baltimore a new city for their business. They have crunched the numbers and discover it would mean adding $2 million more in expenses, and their profit would increase by $250,000 each year for the next 5 years (all other things equal). Darian and Ivan decide
- to open in a second city because the marginal cost of the new location is low compared to other similar projects.
- to take on the new location of Baltimore because the expected marginal benefit is greater than the estimated marginal cost.
- to not open in a new city because the marginal costs prove to be too high.
A: to not open in a new city because the marginal costs prove to be too high.

Q: 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
- to open a mattress drop off site downtown because the marginal cost of the new location is less than other similar projects.
- to open a mattress drop off site downtown because the expected marginal benefit is greater than the estimated marginal cost.
- to not open a mattress drop off site downtown because the marginal costs prove to be too high.
A: to not open a mattress drop off site downtown because the marginal costs prove to be too high.

Q: Marginal benefit is
- the change in the total benefit that a company can receive by producing another unit of product.
- the average benefit that each unit of something provides.
- the additional benefit that one more unit of something will provide.
A: the additional benefit that one more unit of something will provide.

Q: The additional benefit that one more unit of something will provide is known as
- marginal cost.
- economic certainty.
- marginal benefit.
A: marginal benefit.

Q: Which of the following statements reflects marginal decision-making?
- The total benefits is equal to the total cost of the program.
- Renting this economy car has been nice, but a luxury car looks more enjoyable.
- If we double the order to a dozen cookies, we will pay only 15 percent more.
A: If we double the order to a dozen cookies, we will pay only 15 percent more.

Q: Which of the following statements reflects marginal decision-making?
- The total cost of the program is equal to the total benefits.
- Staying in this rental cottage longer would be nice, but the cottage next door is more attractive.
- If we double the order to a dozen doughnuts, we will pay only 20 percent more.
A: If we double the order to a dozen doughnuts, we will pay only 20 percent more.

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

Q: The musician was known for multiple encore performances, but had limited stamina and a rational mind. Even she would eventually call it a night when, by her judgement
- the total enjoyment (benefit) of the concert was maximized.
- the additional enjoyment of one more encore (the marginal benefit) is rising.
- the marginal cost is greater than the marginal benefit of an additional encore.
A: the marginal cost is greater than the marginal benefit of an additional encore.

Q: The construction estimator told the storage unit owner that building another section of storage units will likely add 100 more storage space renters to the bottom line. The rational storage business owner considered the rental prices of an additional 100 units, but he would decide to add more units if and only if
- the total benefits from all storage units are greater than the the total cost of all storage units.
- demand for additional storage units from one more storage building (the marginal product) is rising.
- the marginal benefit is greater than the marginal cost of additional units.
A: the marginal benefit is greater than the marginal cost of additional units.

Q: 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
- the total enjoyment (benefit) of the speaking engagement was maximized.
- the additional enjoyment of one more speaking engagement (the marginal benefit) is rising.
- the marginal cost is greater than the marginal benefit of an speaking engagement.
A: the marginal cost is greater than the marginal benefit of an speaking engagement.

Q: A positive statement is always
- based upon what ought to be.
- correct.
- without value judgments.
A: without value judgments.

Q: A positive statement is
- a value judgment.
- based upon an optimistic judgment.
- can be shown to be correct or incorrect.
A: can be shown to be correct or incorrect.

Q: Normative statements are based upon
- conjecture.
- facts.
- value judgments.
A: value judgments.

Q: Normative statements are based upon
- conjecture.
- what can be demonstrated to be true.
- value judgments.
A: value judgments.

Q: Identify the positive statement among the following statements.
- College tuition is too high.
- College tuition is not high enough.
- College tuition is higher for out-of-state students than it is for in-state students.
A: College tuition is higher for out-of-state students than it is for in-state students.

Q: Identify the normative statement(s) among the following statement(s).
- The federal government budget deficit reached 4% of GDP last year.
- The federal government’s spending is greater than its revenue to the treasury.
- The federal government spends too much.
A: The federal government spends too much.

Q: Which of the following statements is normative?
- Installing solar panels will provide a rate of return on investment of 5%.
- Investing in solar-powered electricity is a growing trend.
- Installing solar panels is better for society.
A: Installing solar panels is better for society.

Q: Which of the following statements is positive?
- 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.
- I am absolutely positive that there is a better way.
- Social security benefits are not taxed.
A: Social security benefits are not taxed.

Q: Which of the following statements is normative?
- Retired professionals spend less than working professionals.
- Retired professionals are more generous tippers than working professionals.
- Retired professionals should work less and get out more.
A: Retired professionals should work less and get out more.

Q: Which of the following statements is normative?
- Tax breaks can change corporate behavior.
- Congress gives certain business corporations tax breaks.
- Congress gives too many tax breaks to corporations.
A: Congress gives too many tax breaks to corporations.