Core Principles of Economics

Kevin Williamson goes to a local coffee shop and orders a medium-sized latte. His willingness to pay for that latte is $6. The price of the latte is $2. The cost to the coffee shop to produce the latte is $1. How much economic surplus does Kevin gain when he purchases the latte?

$4

Amanda Mendez goes to a local café and orders a sandwich. Her willingness to pay for that sandwich is $10. The price of the sandwich is $4. The cost to the cafe to produce that sandwich is $1. How much economic surplus does Amanda receive when she purchases the sandwich?

$6

Which of the following is NOT a factor of​ production?

100 shares of Microsoft stock

Which of the following is an example of a normative economic​ statement?

An increase in social security benefits will increase the welfare of all economic agents.

If Project X has a cost of​ $6 and provides a benefit of​ $10 and Project Y has a cost of​ $25 and provides a benefit of​ $27, which of the following statements is​ true?

An individual can optimize by choosing Project X.

Which of the following are considered scarce​ resources? ​(Check all that apply.​)

Diamonds, TIme, Oil

Suppose your New Year resolution is to get back in shape. You are considering various ways of doing​ this: you can sign up for a gym​ membership, walk to​ work, take the stairs instead of the​ elevator, or watch your diet. How would you evaluate these options and choose an optimal​ one?

Do a​ cost-benefit analysis to compare the alternatives.

Which of the following statements is true of​ equilibrium?

In​ equilibrium, all economic agents are choosing the best feasible option simultaneously.

Some friends and I are heading to a concert. We all have purchased $50 tickets. I just realized that I lost my ticket on the subway ride to the concert. I am confronted now with a decision of whether or not to buy a new ticket and go to the concert. Which of the following best describes that decision?

Is the concert worth paying $50 to attend?

How does microeconomics differ from​ macroeconomics?

Microeconomics is the study of how​ individuals, households,​ firms, and governments make​ choices, while macroeconomics is the study of the economy as a whole.

Suppose you have just been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. During a meeting with your​ client, the CEO asks if your economic models include all factors that impact gasoline prices. What is your response to his​ question?

No, the model is a simplified representation of reality.

Natalie is a skilled theater artist. She is offered a job as a manager in a bank with an annual salary of​ $30,000, and she has a fixed monthly expense of​ $2,000. However, getting theater projects is challenging due to competing with the other skilled and competitive artists causing her​ to, on​ average, solicit projects that result in an annual salary of​ $18,000 per year. Which of the following statements is NOT​ true?

The net benefit of working as a theater artist is ​-$12,000.

Let's say that you are trying to decide what to do on Friday at 11 a.m. You rank your possible options from the one you value the most to the one that you value the least in the following​ order: going to​ class, sleeping in​ late, going to work​ early, getting​ lunch, going to the gym to​ exercise, and watching television.If you decide to go to​ class, then what do we know about the opportunity cost of your​ decision?

The opportunity cost would be sleeping in​ late, since it was your​ next-best option.

Which of the following will hold true if the market for cameras is in equilibrium at a price of​ $40?

The quantity of cameras produced will equal the quantity of cameras bought in the market.

The concept of opportunity cost is a measure of ​ ________.

The value of the next best alternative use of a resource.

Which of the following statements would not be considered a positive​ statement?

The vending machine outside the classroom needs a better selection of food.

Good economic decision-making means which of the following?

Thinking about marginal benefits and marginal costs of the good and services

If a good or service is scarce, which of the following is true?

We must give something up if we want more of the good.

______________ is estimated by asking: "What is the I am willing to pay to get this benefit (or avoid that cost)?"

Willingness to pay; most

Ivan has inherited his grandmother's 1963 Chevrolet Corvette, which he values at $45,000. He decides that he might be willing to sell it so he posts it on Craigslist for $55,000. Samantha is interested and willing to pay up to $72,000. Would Ivan and Samantha want to voluntarily engage in trade?

Yes, because Ivan's willingness to accept is lower than Samantha's willingness to pay

A classic movie about the end of the world showed a floating island on what was the Pacific Ocean. In the middle of the movie filming, the set sank in a hurricane. The producers who had already spent $70 million on the set were faced with a new cost of $50 million to rebuild the set. Expected additional costs continued to be $100 million. The expected revenues were $160 million. Should they have rebuilt the set and finished the movie?

Yes. The set sank. What is it about sunk costs that you do not understand?

You have accumulated frequent flyer miles, that you can use for a round-trip ticket to Bermuda over Fall break, or to fly back home in December after final exams are over. You will fly back home in any case, but if you have used your miles already, you will have to pay $300 for the plane ticket. If you choose to use your miles to fly to Bermuda over Fall​ break, then that trip​ ____________.

cost​ $300, since your​ next-best alternative for your miles was to use them to fly home at the end of the semester.

When the government chooses to spend the tax dollars that it collects on homeland​ security, its choice​ ______.

involves a tradeoff of other goods and services such as education for more homeland security

A lawn service is deciding whether to add an additional employee to its summer crew. The marginal cost of hiring this worker depends on the

total amount paid to the new worker.

Suppose that for the past two​ months, you have studied economics one hour a day. You now decide to study economics two hours a day. For the past two​ months, ________.

your marginal benefit from studying economics an hour must have been greater than its marginal cost

Your employer has asked you to start working overtime and has offered to pay​ $18 per hour for every hour you work beyond forty hours a week. The wage rate for each of the first forty hours will continue to be the usual​ $15 per hour. In terms of​ dollars, what is the marginal benefit of working each hour of​ overtime?

​$18.00