ECO Content Quiz #1

network effect

the effect that occurs when a good becomes more useful because other people begin to/will use it ex. TikTok growing in popularity

marginal benefit

the extra benefit of adding one unit

fixed costs

costs that do not vary with production or sales level

variable costs

costs that vary directly with the level of production

P E P T I C

Preferences Expectations of future market/prices Prices of related goods Time and # of buyers Income Congestion and network effects

market demand curve

the sum of the quantity demanded by each individual/market at each price.

economic surplus

the total benefits minus total costs from a decision

what does opportunity cost say about resources?

they are limited

what factor only changes market demand curve without changing the individual demand curve?

type and number of buyers

you pay $13 to see a movie, but one hour into the movie, you're bored. do you stay until the end? is this a high or low opportunity cost?

$13 should not influence the decision because you can not get it back. The opportunity cost of the alternative use of the extra hour is higher than the benefit of staying

law of supply

producers offer more of a good as its price increases

you purchase $35 halloween costume for a party but now you don't feel well. you can not return the costume, though. do you go to the party?

$35 should not influence decision because it is a sunk cost

4 dependencies of interdependence principle

1. dependency between individual choices 2. dependency between people/businesses in the smae market 3. dependency between markets 4. dependency through time

suppose a deli is willing to sell 200 sandwiches for $10. if the price falls to $8, how many sandwiches would they be willing to sell?

100 sandwiches

suppose the marginal benefit of 1st coffee cup is $4, of your second is $3, and of your third is $2. If the price of coffee is $3, how many cups should you buy?

2 cups

suppose you and your 99 classmates all have identical marginal benefits for coffee: the marginal benefit of the 1st cup is $4, the second is $3, the third is $2. if the price is $3, what is the quantity demanded by the entire market?

200 cups individuals would buy 2 cups because after 2 cups, the marginal benefit is less than the cost. then, scale up for 100 customers - 200 cups

complementary goods

Goods that are commonly used with other goods demand for a good will decrease if the price of complementary good increases

use MCOI to choose best quantity to supply

M: should i supply one more unit? C: you should produce one more unit if the price is greater than or equal to marginal cost O: compare cost of producing another unit to next best alternative... should i supply one more unit OR...? I: best option depends on other choices/expectations of the future

sunk cost

a cost that has already been paid and cannot be recovered

Inferior good

a good that consumers demand less of when their incomes increase ex. ramen noodles

Normal good

a good that consumers demand more of when their incomes increase ex. new car

perfectly competitive market

all firms in industry sell identical goods

what would decrease the quantity demanded?

an increase in current price

rational rule for buyers

buy more of an item if its marginal benefit is greater than (or equal to) the price

two types of related goods

complementary and substitute

law of demand

consumers will buy more of a good when its price is lower ; holding other things constant

marginal cost

cost of an extra unit

you decide reading the textbook tonight will help with your economic surplus in the future in class. what dependency is this?

dependency through time

why is the demand curve downward sloping?

diminishing marginal benefit

diminishing marginal benefit

each item yields a smaller marginal benefit than previous item AKA as you consume more of a good, your willingness to pay for an additional unit declines

substitute goods

goods that can be used to replace the purchase of similar goods when prices rise

good example of marginal benefit

ice cream: first scoop- the benefits are sweet and great... start to feel full and sick after each additional scoop

The cost-benefit principle indicates that an action should be taken

if the benefit is greater than or equal to the cost

how do expectations shift demand?

if you believe prices will rise, you buy today (increasing demand) if you believe prices will fall, you buy tomorrow (decreasing demand)

individual demand curve

illustrates the relationship between quantity demanded and price for an individual consumer at each price

individual supply curve

illustrates the relationship between quantity supplied and price for an individual seller

what does rational rule state about marginal benefit?

keep adding one more unit until marginal benefit = marginal cost

rational rule for sellers

price is greater than or equal to marginal cost

if a price changes, where does change take place?

slide along demand curve

opportunity cost

the cost of the next best alternative use of money, time, or resources when one choice is made rather than another

if the quantity demanded changes, where does this change take place?

the demand curve shifts with changes in demand

congestion effect

the effect that occurs when a good becomes less valuable because other people begin to/will use it ex. accident on highway creates delays and traffic

does IDC hold other things constant?

yes

you are suppliers of labor. what happens to the number of hours you are willing to work as wage raises?

you are willing to work more hours as the price per hour increases