SSEF2 Review 2019

A rational decision maker:

• ignores marginal changes and focuses instead on "the big picture".

• ignores the likely effects of government policies when he or she makes choices.

• takes an action only if the marginal benefit of that action exceeds the marginal cost of that action.

• takes an action only if the combined benefits of that action and previous actions exceed the combined costs of that action and previous actions.

Consumers make rational decisions about what they purchase every day. For example, Esther went to the supermarket to buy apples to make two pies. She needed at least five apples for each pie. Golden Delicious apples cost 25 cents a piece; a bag of 16 Golden Delicious apples costs $3.25. She bought the bag of Golden Delicious apples, even though she would have six apples left after making the pies. Which statement BEST describes Esther's choice?

• Esther decided the marginal benefit of having six more apples exceeded the marginal cost of paying 75 cents extra.

• Esther decided the marginal benefit of having six more Golden Delicious apples did not exceed the marginal cost of paying 75 cents extra.

• Esther compared the price per apple and decided the most expensive apples would be the best to buy, so she bought the bag.

• Esther compared the prices of the individual apples and the bag of apples and bought exactly the number of apples she needed to make two pies.

NXTX Incorporated currently has 10 workers. It would like to expand and hire more workers. Each additional worker will cost the company $100 per day. According to the information in the table, how many workers in total should NXTX Incorporated employ to maximize its profits?

• 11

• 12

• 13

• 14

Frank owns his own printing firm. Since business has been going well, he wants to look at ways he can increase production. After assessing his resources and potential business, he determines that hiring two new employees and buying a new printing press will enable him to increase his production by 20 percent over a four-month period. Therefore, Frank hires the two employees and purchases the press. Frank's actions are a perfect example of a(n):

• opportunity cost.

• tradeoff.

• rational economic decision.

• trade barrier.

Jamie must make an economic decision. He must choose whether or not to buy a new truck. After considering all the options, he concludes that the marginal costs of the truck are greater than the marginal benefits. In Jamie's case, buying the truck would be:

• a rational economic decision.

• an irrational economic decision.

• an opportunity cost.

• a productive choice.

Which of the following would consumers MOST OFTEN consider when trying to make a rational economic decision?

• the impact of government subsidies

• potential opportunity costs

• factors of production

• net exports

Lola is selling Happy Teen magazine at her school to raise money for a trip to Washington, DC. The marginal cost of each magazine she buys is $2.00, and the price she sells them for is $5.00. Yesterday, she got a letter in the mail saying that the magazine was raising its cost per magazine from $2.00 to $3.50. Today, Mrs. Ibarra pulls Lola aside and informs her that, from now on, she will only be allowed to sell the magazine for $3.25 at school. What has happened to Lola's incentive to produce?

• She will have less incentive to produce because the higher marginal cost lowers her profits.

• She will have more incentive to produce because she will sell more at the lower prices and make more profits.

• Her incentive to produce will remain unchanged because she still wants to go to Washington, D.C.

• She will have no incentive to produce because with the change in marginal cost and price, she will no longer make a profit.

Bill must decide between using the $20 he has on hand to either go to the movies with his best friend, Nate, or buy a gift for the girl he likes, Sarah. If Bill decides that the marginal benefit he would get from buying Sarah the gift is greater than the marginal cost, the rational economic choice for Bill would be:

• to go to the movies with Nate.

• to buy Sarah a gift.

• to avoid any opportunity cost.

• to save his resources for another time.

Amanda is offered a raise and a brand new office if she can double her sales totals of the previous year. Amanda's employers are attempting to motivate her with:

• a negative incentive.

• compound interest.

• a positive incentive.

• human capital.

Tradeoffs, opportunity costs, marginal benefits, marginal costs, and personal priorities are all important to consider when:

• dealing with fiscal policy.

• using credit.

• making rational economic choices.

• responding to monetary policy.