MicroEconomics, Chapter 1

Cassie's Quilts alters, reconstructs and restores heirloom quilts. Cassie has just spent $800 purchasing, cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished. After having spent $800, Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task. Alternatively, she can sell the quilt "as is" now for $900. What is the marginal cost of completing the task?

$200

Cassie's Quilts alters, reconstructs and restores heirloom quilts. Cassie has just spent $800 purchasing, cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished. After having spent $800, Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task. Alternatively, she can sell the quilt "as is" now for $900. What is her marginal benefit if she sells the quilt "as is" now?

$900

Economics promotes which of the following as the way to make the best decision

Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost

Your roommate, Serafina, a psychology major said, "The problem with economics is that it assumes that consumers and firms always make the correct decision. But we know that everyone's human, and we all make mistakes." Do you agree with her comment?

I disagree with her. Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave rationally, meaning they made the best decisions given their knowledge of the costs and benefits.

What is an economic model?

It is a simplified version of some aspect of economic life used to analyze an economic issue.

Cassie's Quilts alters, reconstructs and restores heirloom quilts. Cassie has just spent $800 purchasing, cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished. After having spent $800, Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task. Alternatively, she can sell the quilt "as is" now for $900. What should she do?

She should purchase the period fabric, complete the task and then sell the quilt.

The term "market" in economics refers to

a group of buyers and sellers of a product and the arrangement by which they come together to trade.

What does the term "marginal" mean in economics?

additional or extra

Economics is the study of the________ people make to attain their goals, given their_________ resources.

choices, scarce

Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes. "Although the last 400 t-shirts we produced and solid increased our revenue by $4,000 and our costs by $4,800 we are still making an overall profit of $10,000 per week so I think we're on the right track. We are producing the optional number of t-shirts." Had the firm not produced and sold the last 400 t-shirts, would its profit be higher or lower, and if so by how much?

its profit would be $800 higher

Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes. "Although the last 400 t-shirts we produced and solid increased our revenue by $4,000 and our costs by $4,800 we are still making an overall profit of $10,000 per week so I think we're on the right track. We are producing the optional number of t-shirts." Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 400 t-shirts?

marginal cost

Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes. "Although the last 400 t-shirts we produced and solid increased our revenue by $4,000 and our costs by $4,800 we are still making an overall profit of $10,000 per week so I think we're on the right track. We are producing the optional number of t-shirts." Using the marginal analysis terminology, what is another economic term for the incremental revenue received from the sale of the last 400 t-shirts?

marginal revenue

Economists assume that

optimal decisions are made at the margin

Economists assume that rational people

respond to economic incentives

Consider the following economic agents: a. the government b. consumers c. producers Who, in a modern economy, decides what goods and services will be produced with the scare resources available in that economy?

the government, consumers, and producers

Scarcity refers to the situation in which

unlimited wants exceed limited resources