Which One of the Following States a Central Element of the Economic

question 109

Multiple Choice

Which one of the following states a central element of the economic way of thinking?

• A) Scarce goods are priceless.
• B) Incentives matter--human choice is influenced in predictable ways by changes in personal costs and benefits.
• C) The realism of the assumptions is the best test of an economic theory.
• D) When deciding how to allocate time, the concept of opportunity cost is meaningless.

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Definitions:

Production Possibilities

The different combinations of goods and services that an economy can produce given its available resources and technology.

Average Product

A metric that measures output per unit of a variable input, calculated by dividing total production by the quantity of the variable input.

Diminishing Marginal Returns

A principle stating that as additional units of a variable input are added to a fixed input, the additional output produced from each new unit decreases beyond a certain point.

Diminishing Marginal Returns

A principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot increase forever and will eventually decrease.