Units of Oil Paints Marginal Utility of Oil Paints Units of Canvases Marginal Utility of Canvases 1 10 25 2 7.5 2 20 3 5 3 15 4 2.
Question

# 1.08 Basic Economic Concepts

Q. If a consumer is trying to choose between four different restaurants for dinner, which of the following accurately describes the relief of hunger? (2 points)

a. It is a benefit with marginally increasing returns.

b. It is a variable cost of the meal because the consumer will eat varying amounts by restaurant.

c. That benefit is constant because a meal at any of the four restaurants will relieve hunger.

d. It is a rational factor to consider in the choice.

e. It is not a part of the utility of any of the consumer's options.

Q. Below is the total benefit Michelle estimates she would get for eating handfuls of dried cranberries in one sitting.

Number of HandfulsTotal Benefit (dollars)

1 \$2.00

2\$3.50

3\$4.50

4\$5.00

5\$5.25

6\$5.00

7\$4.00

If a handful of dried cranberries costs \$0.25, what is the optimal number of handfuls for Michelle to eat? (2 points)

a. 1

b. 2

c. 3

d. 4

e. 5

Q. According to rational consumer choice, what will happen to the optimal quantity of consumption for a good if the price decreases? (2 points)

a. It will decrease along with total utility.

b. It will decrease.

c. It will increase.

d. It will be unaffected.

e. Insufficient data to determine

Q.

Below is the marginal utility that Chris gains from purchasing oil paints and canvases for his painting hobby.

Chris has \$35 and spends it all on paints and canvases. If oil paints are \$2.50 per unit and canvases are \$25 per unit, Chris will maximize his utility by buying which of the following combinations of paints and canvases? (2 points)

1 canvas and 1 paint

1 canvas and 3 paints

1 canvas and 4 paints

2 canvases and 0 paints

2 canvases and 1 paint

Q. Stephanie spends all her money on magazines and herbal tea. Her last magazine purchased cost \$10 and gave her 20 utils and her last tea was \$2 and gave her 4 utils. Based on this, which of the following is accurate? (2 points)

a. Stephanie should purchase more magazines.

b. Stephanie should purchase more tea.

c. Stephanie should not change her consumption.

d. Stephanie will increase her marginal utility with one more tea.

e. Stephanie enjoys more utility per dollar from tea than from magazines.

Q.

Below shows the total utility Mike enjoys based on eating different quantities of miniature powdered donuts.

Based on the table above, what is the marginal utility of the fourth powdered donut? (2 points)

3 utils

12 utils

20 utils

26 utils

29 utils

Q. The foundational principle of consumer choice theory is that people make choices in order to (2 points)

maximize their total utility

minimize costs

consume the highest quantity for the least price

compete with other consumers

experience diminishing marginal benefits

Q. Matilda is offered a free, all-expenses paid trip that would require missing a full four days of work. Her optimal choice must (2 points)

consider only the cost of the trip if she had to pay for it herself

include the marginal utility of each individual day of the trip

compare the total benefits of the trip with the income given up

include the cost of paying for a friend to take the trip with her

consider other trade-off activities for the time away from her job

Q. Deciding whether to purchase an additional unit of a good involves (2 points)

non-rational decision-making

marginal cost-benefit analysis

total cost-benefit analysis

no opportunity costs

finding the least utility per dollar for consumers

Q. What measure reflects all the benefits to consumers? (2 points)

Total utility

Marginal cost

Total revenue

Marginal utility

Net revenue

Q. The benefits to businesses are known as ________ and the benefits to consumers are known as ________. (2 points)

revenues; utility

profits, revenues

incentives; revenues

subsidies; taxes

utility; profits

Q. The graph below shows the marginal benefit a consumer would receive for different quantities of a good. (2 points)

Anastasia pays for a number of pizzas according to the total benefits or total value she gets from them. What total benefits does she get when she consumes 4 pizzas?

\$0

\$5

\$9

\$12

\$14

Q. Use the production possibilities table below to answer the following question. Assume constant opportunity costs for Tommy and Gina.

Given the data above, which statement provides the correct rationale for a trade agreement of 1.5 rugs for 1 pillow? (2 points)

Gina's opportunity cost for producing pillows is less than Tommy's.

Tommy has a comparative advantage in both products, so he can dictate the terms of trade.

Gina has no incentive to trade with Tommy, because she has an absolute advantage in both products.

Tommy has a comparative advantage in rugs, and Gina has a comparative advantage in pillows.

Tommy has an opportunity cost that is lower than Gina for pillows, so he will want to trade pillows for rugs at a lower cost than he can produce them for himself.

Q. Frank can grow 15 bushels of tomatoes and 5 bushels of corn in one growing season. Mary can grow 15 bushels of tomatoes and 15 bushels of corn. In which crops should Frank and Mary specialize? (2 points)

Specialization would not benefit Mary or Frank.

Neither Frank nor Mary should specialize in tomatoes.

Frank should specialize in tomatoes and Mary in corn.

Mary and Frank should both specialize in tomatoes and corn.

Frank and Mary can benefit equally from specialization in corn.

Q. Assume Country Q and Country P can produce only two goods: gadgets and widgets. Country Q has an absolute advantage in widgets and a comparative advantage in gadgets. Assume each country has constant opportunity costs of production. Country P must have (2 points)

an absolute and comparative advantage in widgets

no absolute advantage in either good, but a comparative advantage in widgets

Q. A producer can produce a good at lower unit cost than any other producer. For that good, the producer must have (2 points)

diminishing marginal utility

beneficial terms of trade to offer

more factors of production

Q. How would economic growth be reflected on a production possibility curve? (2 points)

Movement along the curve

Not reflected on the PPC

Shift outward of entire curve

Shift inward of entire curve

Stretching along a range of the curve

Q. On a production possibilities curve (PPC), what does an outward shift imply? (2 points)

There has been an increase in technology and/or resources.

Government intervention has introduced alternative inputs.

Inputs and outputs have balanced out to create an efficient market.

Trade has increased to allow more resources to enter the market.

There has been an increase in both supply and demand.

Q. Use the graph to answer the prompt. (2 points)

Moving from point ________ to point ________ would indicate a move from an inefficient market to an efficient market.

A; D

B; E

C; B

D; C

E; A

Q. The primary function of a PPC is to show (2 points)

allocative efficiency

productive efficiency and opportunity cost

marginal utility

circular flow

the general suitability of all resources for any good or service

Q. Partners in a restaurant are looking to expand to a second location. They must decide what menu the new restaurant should have. What basic economic question are they answering? (2 points)

How to produce

What to produce

How to attract customers

How much investment they need

What sort of risk they should tolerate

Q.

Which of the following questions helps leaders of business firms determine resource allocation? (2 points)

Who consumes the goods?

Which people most need the goods or services?

Is the opportunity cost of resources constant or increasing?

How much money do people have to pay for the goods or services?

Are the resources used to produce the goods scarce?

Image transcriptions

Units of Oil Paints Marginal Utility of Oil Paints Units of Canvases Marginal Utility of Canvases 1 10 25 2 7.5 2 20 3 5 3 15 4 2.5 4 10 5 1 5

Miniature Powdered Donuts Consumed Total utility (utils) 1 12 2 20 3 26 4 29 5 28 6 25

\$6 \$5 Price \$2 Quantity

Pillows per Day Rugs per Day Tommy 5 10 Gina 15 15

O B Product I E O D Product 2