Identify and briefly explain the THREE assumptions under rational choice theory
consumer rationality (driven by self-interests), utility maximization, perfect information
25
Define consumer surplus.
Consumer surplus is the positive difference between the amount that a consumer is willing and able to pay for a good and the amount they actually pay.
15
What is marginal benefit? Why is it equal to the demand curve?
Additional benefit you get from consuming additional quantities of a good; additional benefit decreases since your enjoyment decreases with quantity
15
Identify an example of a good that do not require opportunity cost to produce. What are they called?
Free goods are naturally abundant and the quantity available is sufficient to satisfy all human wants, therefore do not incur any opportunity costs.
15
Explain why scarcity is a relative concept.
In some contexts, you may have enough / more than enough of a good but in other contexts you may not (oxygen in most places vs. on Everest)
20
Explain how the three basic economic questions applies to governments.
What to produce (more healthcare or schools?), how to produce (public vs. private), for whom to produce (does everyone get free healthcare? Only those who pay?)