Chapter 1 Section 2 Exam 2 Review
How does opportunity cost affect decision making?
Main Idea: A trade-off is the act of giving up one thing for another.
1. Who makes trade-offs?
2. Why do decisions lead to trade-offs?
Main Idea: Opportunity cost is what you give up when you choose
something else.
3. Why are opportunity costs different for each possible choice?
Main Idea: Thinking at the margin is deciding how much more or less to do.
4.
What do you compare when you think at the margin?
5.
How can thinking at the margin help improve profits?
Key Terms
Directions: Answer the following questions. Use complete sentences.
6.
What is the difference between a trade-off and an opportunity cost?
7.
What is the purpose of a cost/benefit analysis?
.
Opportunity Cost
A. Trade-Offs
1. Giving up one thing for another is called a ______.
2. The term “guns or butter” refers to a trade-off between military goods and ________
goods.
B.
Main Ideas
Directions: Write the letter of the correct answer in the blank provided.
7. If you choose between two summer jobs, the one you do not choose is the
of your decision.
a. trade-off
c. decision at the margin
b. opportunity cost
d. opportunity at the margin
8. Making a decision at the margin is possible only in situations where
a. the available opportunity costs are unclear or complicated.
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b. the available alternatives can be divided into increments.
c. there are more than three different types of alternatives to consider.
d. there are differences in the amount of time each alternative will consume.
9. Every decision involves trade-offs because
a. everyone has to make decisions.
b. everyone’s resources are limited.
c. some people have more money than others.
d. some decisions are made for business, others for society.
10. A decision is made at the margin when each alternative considers
a. a different trade-off than the others.
b. where the most costly alternative will be.
c. what the “all or nothing” alternative will be.
d. cost and benefit ranked in progressive units.
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