A) All rational economic agents attempt to maximize their income.
B) A rational consumer makes his decisions depending on what the majority chooses.
C) A budget constraint is an economic tool that quantifies the trade‐off between the consumption of two
goods.
D) A trade‐off refers to the exchange of goods between economic agents through the barter system or
mutual exchange.
Answer: C
Difficulty: Easy
AACSB: Analytical Thinking
Topic: Trade‐offs and Budget Constraints
14) Why do trade‐offs occur? How are budget constraints related to trade‐offs?
Answer: Trade‐offs occur because of scarcity–economic agents need to satisfy their wants with limited
resources. Therefore, in most cases, some benefits have to be given up to gain other benefits. Budget
constraints quantify the relevant trade‐offs that an economic agent faces. Once trade‐offs are quantified,
rational decision making becomes easier, allowing the individual to make an optimal decision.
Difficulty: Easy
AACSB: Analytical Thinking
Topic: Trade‐offs and Budget Constraints
15) The best alternative use of a resource is referred to as its ________.
A) optimization cost
B) market price
C) social cost
D) opportunity cost
Answer: D
Difficulty: Easy
AACSB: Analytical Thinking
Topic: Opportunity Cost
16) A student has two options: she can either surf the web or work part‐time. Working part‐time pays her
$20 per hour. What is the studentʹs opportunity cost of surfing the web for 5 hours?
A) $4
B) $20
C) $50
D) $100
Answer: D
Difficulty: Medium
AACSB: Application of Knowledge
Topic: Opportunity Cost
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17) John has to choose between two jobs: one that offers him $50 per hour and one that offers him $35 per
hour. The opportunity cost of choosing the job that offers him $50 per hour is ________.
A) $1.5 per hour
B) $15 per hour
C) $35 per hour
D) $85 per hour
Answer: C
Difficulty: Medium
AACSB: Application of Knowledge
Topic: Opportunity Cost
18) Define opportunity cost. A student who has just graduated from college has three job offers: the first
job pays $35,000 a year, the second job pays $23,000 a year, and the third one pays $15,000 a year. What is
the studentʹs opportunity cost of taking the first job?
Answer: Opportunity cost is the best alternative use of a resource. It is what an economic agent is giving
up when he chooses a particular option. If the individual decides to take the first job, he will earn $35,000 a
year. The opportunity cost of taking this job is the next‐best offer that he could have taken. Therefore, the
opportunity cost of the first job is $23,000 a year.
Difficulty: Easy
AACSB: Application of Knowledge