Question

a. key terms and concepts
directions: match each item with one of the descriptions below.

1. figuring out what you will gain and lose

from an action

1. giving up one thing for another
2. the additional cost of producing one unit
3. the next best alternative given up when a

decision is made

1. the added benefit from adding one unit
2. analyzing marginal costs and benefits

b. main ideas
directions: write the letter of the correct answer in the blank provided.

1. what does the economic concept of \guns or butter\ mean?

a. people choose between guns and food.
b. government must decide to make military or consumer goods.
c. companies must make guns or butter.
d. government can buy unlimited military and consumer goods.

1. if you choose between two summer jobs, what is the one you do not

choose called?
a. trade - off
c. decision at the margin
b. opportunity cost
d. opportunity at the margin

1. what information is needed to make a decision at the margin?

a. opportunity costs
c. more than three alternatives
b. cost to produce each unit
d. factors of production

1. why does every decision involve trade - offs?

a. everyone has to make
decisions.
b. incomes are not equal.
c. resources are limited.
d. decisions are all different.

Explanation:

1. Cost/benefit analysis involves figuring out gains and losses from an action.
2. Trade - off is giving up one thing for another.
3. Marginal cost is the additional cost of producing one unit.
4. Opportunity cost is the next best alternative given up when a decision is made.
5. Marginal benefit is the added benefit from adding one unit.
6. Thinking at the margin is analyzing marginal costs and benefits.
7. "Guns or butter" means government must decide to make military or consumer goods.
8. The job not chosen is called opportunity cost.
9. Cost to produce each unit is needed to make a decision at the margin.
10. Every decision involves trade - offs because resources are limited.

Answer:

1. a
2. f
3. c
4. d
5. b
6. e
7. b
8. b
9. b
10. c