1c – Making Choices:
Scarcity and Budget Lines
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Lesson 1c
Must Know / Outcomes
• definitions of economics
• definition of scarcity
• two things necessary to cause scarcity
• what is rational choice? (purposeful behavior?)
• what are economic models and why do economists use them?
• what are opportunity costs? (trade offs?; "no such thing as a free lunch"?)
• ceteris paribus
• positive vs. normative economics
• macroeconomics vs. microeconomics
• what is the consumer dilemma (economizing problem)?
• what is a budget line (budget constraint)?
• how does the budget line illustrate the necessity of making choices?
• how do changes in income and prices affect the budget line?
• what are the four categories of resources (or factors of production)?
1. The opportunity cost of any
particular choice is:
1. The least expensive alternative to
the choice
2. The best alternative to the choice
3. The price that one pays for the
choice
4. The most expensive alternative to
the choice
1. The opportunity cost of any
particular choice is:
1. The least expensive alternative to
the choice
2. The best alternative to the choice
3. The price that one pays for the
choice
4. The most expensive alternative to
the choice
2. Scarcity:
1.
2.
3.
4.
is a problem only during a recession
is a problem only in developing countries
Is a problem only among poor people
Requires that people make choices
2. Scarcity:
1.
2.
3.
4.
is a problem only during a recession
is a problem only in developing countries
is a problem only among poor people
requires that people make choices
3. Economists use economic models:
1. to maintain real-world complexity
2. to appear as precise as the physical
scientists
3. to understand how the real world
works
4. to include every detail in their analysis
3. Economists use economic models:
1. to maintain real-world complexity
2. to appear as precise as the physical
scientists
3. to understand how the real world
works
4. to include every detail in their analysis
4. Economics is the study of:
1.
2.
3.
4.
How businesses generate profits
How society chooses to use its resources
How to more equitably distribute income
How money is used in our culture
4. Economics is the study of:
1.
2.
3.
4.
How businesses generate profits
How society chooses to use its resources
How to more equitably distribute income
How money is used in our culture
5. In economics, the term
“ceteris paribus” means:
1.
2.
3.
4.
The central variable
Hold all other variables constant
“In the unlikely event that . . .”
None of the above
5. In economics, the term
“ceteris paribus” means:
1.
2.
3.
4.
The central variable
Hold all other variables constant
“In the unlikely event that . . .”
None of the above
6. An example of a topic that
microeconomists study is:
1. a change in Ford motor company’s market
share
2. a change in the unemployment rate
3. a change in inflation
4. a change in the rate of economic growth
6. An example of a topic that
microeconomists study is:
1. a change in Ford motor company’s market
share
2. a change in the unemployment rate
3. a change in inflation
4. a change in the rate of economic growth
7. The budget line shows:
1. The amount of product A that a consumer is willing
to give up to get one more unit of product B
2. All possible combinations of two goods that can be
purchased given money income and the prices of the
goods
3. The minimum amount of two goods that a consumer
can purchase with a given money income
4. All possible combinations of two goods that yield the
same level of satisfaction to the consumer
7. The budget line shows:
1. The amount of product A that a consumer is willing
to give up to get one more unit of product B
2. All possible combinations of two goods that can be
purchased given money income and the prices of the
goods
3. The minimum amount of two goods that a consumer
can purchase with a given money income
4. All possible combinations of two goods that yield the
same level of satisfaction to the consumer
8. A shift in the budget line from cd to
ab could be caused by:
1. Decreases in the prices of
both M and N
2. An increase in the price of M
and a decrease in the rice of N
3. A decrease in money income
4. Nothing. Budget lines do not
shift.
8. A shift in the budget line from cd to
ab could be caused by:
1. Decreases in the prices of
both M and N
2. An increase in the price of M
and a decrease in the rice of N
3. A decrease in money income
4. Nothing. Budget lines do not
shift.
9. Any combination of goods lying
outside of the budget line:
1. Implies that the consumer is not
spending all its income
2. Yields less satisfaction than any
point on the budget line
3. Yields less satisfaction than any
point inside the budget line
4. Is unattainable given the
consumer’s income
9. Any combination of goods lying
outside of the budget line:
1. Implies that the consumer is not
spending all its income
2. Yields less satisfaction than any
point on the budget line
3. Yields less satisfaction than any
point inside the budget line
4. Is unattainable given the
consumer’s income
10. Which of the following is NOT one
of the four types of resources?
1.
2.
3.
4.
5.
land
capital
labor
money
entrepreneurial
ability
10. Which of the following is NOT one
of the four types of resources?
1.
2.
3.
4.
5.
land
capital
labor
money
entrepreneurial
ability