econ chapter one

Suppose you find $20. If you choose to use the $20 to go to the football game, your opportunity cost of going to the game is

$20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game.

Referring to question 17, your decision rule should be to complete the hot-dog stand as long as the cost to complete the stand is less than

$800

principle eight

A country's standard of living depends on its ability to produce goods and services - there is a great variation of incomes across countries-- these differences in incomes and standards of living are largely attributable to differences in productivity - as a result, public policy intended to improve standards of living should improve education, generate more and better tools and improve access to current technology.

Suppose your university decides to lower the cost of parking on campus by reducing the price of a parking permit from $200 per semester to $5 per semester. What do you think would happen to the number of students desiring to park their cars on campus?

Answer More students would wish to park on campus.

principle seven

Governments can sometimes improve market outcomes. - government must first protect property rights in order for markets to work. - government can sometimes intervene in the market to improve efficiency or equality.

Suppose your university decides to lower the cost of parking on campus by reducing the price of a parking permit from $200 per semester to $5 per semester. What do you think would happen to the amount of time it would take to find a parking place?

It would take much longer to find a parking place.

Suppose your university decides to lower the cost of parking on campus by reducing the price of a parking permit from $200 per semester to $5 per semester. Thinking in terms of opportunity cost, would the lower price of a parking permit necessarily lower the true cost of parking?

No, because we would have to factor in the value of our time spent looking for a parking place.

Suppose your university decides to lower the cost of parking on campus by reducing the price of a parking permit from $200 per semester to $5 per semester. Would the opportunity cost of parking be the same for students with no outside employment and students with jobs earning $15 per hour?

No. Students who could be earning money working are giving up more while looking for a parking place. Therefore, their opportunity cost is higher.

principle one

People face trade-offs - to get more of something we like, we have to give up something else that we like. - "guns and butter" if society spends more on national defense (guns), then it will have less to spend on social programs (butter)

principle four

People respond to incentives - an incentive is something that induces a person to act. - ex: an increase in the price of gas will cause people to buy smaller cars, bike, take train, take bus, etc.

Principle Nine

Prices rise when the government prints too much money - inflation is an increase in the overall level of prices in the economy. - policy makers who wish to keep inflation low should maintain slow growth in the quantity of money.

principle three

Rational people think at the margin - rational decision makers only proceed with action if the marginal benefit exceeds the marginal cost. - ex: you should only attend school for another year if benefits from that year of schooling exceed the cost of attending that year

Principle Ten

Society faces a short-run trade-off between inflation and unemployment - in the short-run, an increase in the quanitity of money stimulates spending, which raises both prices and production - the increase in production requires more hiring, which reduces unemployment

principle two

The cost of something is what you give up to get it - the opportunity cost of an item is what you give up to get it. It is the true cost of the item.

principle five

Trade can make everyone better off - trade allows each trader to specialize in what he/she does best.

Foreign trade

allows a country to have a greater variety of products at a lower cost than if it tried to produce everything at home

Which of the following statements is true about a market economy? a.) Market participants act as if guided by an "invisible hand" to produce outcomes that promote general economic well-being. b.) Taxes help prices communicate costs and benefits to producers and consumers. c.) With a large enough computer, central planners could guide production more efficiently than markets. d.) The strength of a market system is that it tends to distribute resources evenly across consumers.

a

in the short run,

a decrease in inflation temporarily increase unemployment

what activity is likely to produce an externality? a.) A student sits at home and watches television. b.) A student has a party in her dorm room. c.) A student reads a novel for pleasure. d.) A student eats a hamburger in the student union.

a student has a party in her dorm room b.

an increase in the price of beef provices

information that tells producers to produce more beef

Which of the following is not part of the opportunity cost of going on vacation? the money you could have made if you had stayed home and worked the money you spent on food the money you spent on airline tickets the money you spent on a Broadway show

b.

Which of the following situations describes the greatest market power? a.) a farmer's impact on the price of corn b.) Volvo's impact on the price of autos c.) Microsoft's impact on the price of desktop operating systems d.) a student's impact on college tuition

c.

which would be the least capable of producing an externality? cigarettes stereo equipment inoculations against disease education food

food

high and persistant inflation is caused by

governments increasing the quantity of money too much.

raising taxes and increasing welfare payments

improves equality at the expense of efficiency

productivity can be increased by

improving the education of workers

principle six

markets are usually a good way to organize economic activity - in a market economy, the decisions about what goods and services to produce, how to produce and who gets to consumer them. - firms and households, guided by self-interest, interact in the market place where prices and quantities are determined.

trade-offs are required because wants are unlimited and resources are

scarce

economics is the study of how

society manages its scarce resources

because people respond to incentives, we would expect that if the average salary of accountants increases by 50 percent while the average salary of teachers increases by 20 percent,

students will shift majors from education to accoutning

a rational person does not act unless

the action produces marginal benefits that exceed marginal costs

workers in the United States enjoy a high standard of living because

workers in the US are highly productive

You have spent $1,000 building a hot-dog stand based on estimates of sales of $2,000. The hot-dog stand is nearly completed, but now you estimate total sales to be only $800. You can complete the hot-dog stand for another $300. Should you complete the hot-dog stand? (Assume that the hot dogs cost you nothing.)

yes