14. What are diminishing marginal returns?

15. What is productive efficiency? Allocative efficiency?

16. What is the difference between a positive and a normative statement?

17. Is the economic model of decision-making intended as a literal description of how individuals, firms, and

the governments actually make decisions?

18. What are four responses to the claim that people should not behave in the way described in this chapter?

Critical Thinking Questions

19. Suppose Alphonso’s town raises the price of bus tickets from $0.50 to $1 and the price of burgers rises

from $2 to $4. Why is the opportunity cost of bus tickets unchanged? Suppose Alphonso’s weekly spending

money increases from $10 to $20. How is his budget constraint affected from all three changes? Explain.

20. During the Second World War, Germany’s factories were decimated. It also suffered many human

casualties, both soldiers and civilians. How did the war affect Germany’s production possibilities curve?
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