microeconomics chapter 1

E. The value, if any, of the results of the $50 million spent so far, plus the $20 million.

A business has spent $50 million dollars on development of a new laptop. It must spend an additional $20 million to bring the finished computer to market. What must the value of the investment be for it to make sense for the business? A. Any amount over $20 million. B. Any amount over $50 million. C. Any amount over $70 million. D. The value, if any, of the results of the $50 million spent so far. E. The value, if any, of the results of the $50 million spent so far, plus the $20 million.

A. Yes. The set sank. It is a sunk cost.

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? A. Yes. The set sank. It is a sunk cost. B. No. the loss on the movie was $160 million minus $220 million, a loss of $60,000. C. One cannot tell. They may have thought that revenues would be higher. D. One cannot tell. They may have thought that costs from that point on might have been lower.

A. $100,000

A small clothing firm currently produces 50,000 shirts and blouses per month. The costs of its factory, raw materials, and labor is $500,000 per month. If the company is to increase production by 5,000 and that requires an additional labor and raw material expense of $100,000, what is the best estimate of costs of the increased production? A. $100,000 B. $400,000 C. $500,000 D. $600,000

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

Good economic decision-making means which of the following? A. Comparing all of the benefits with all of the costs related to the production and enjoyment of a good B. Thinking about marginal benefits and marginal costs of the good and services C. Thinking about average benefits and average costs of the goods and services

B. The benefits gained from staying in my room and watching TV

I am thinking about going out to visit with some friends tonight. Given what I have learned in economics, I am comparing my costs with my expected benefits. My alternatives in order of preference are to stay in my room and watch TV; stay in my room and study economics; have my friends over to my room; or go to bed early tonight. What are the costs relevant to my decision (hint: what are the benefits that I have to give up)? A. The benefits gained from going out to visit some friends B. The benefits gained from staying in my room and watching TV C. The benefits gained from watching TV, studying economics, having my friends over, and going to bed early D. The benefits gained from one or two of the alternatives, but not all of them E. None of the above is correct

If I had something better to do, I would do it instead of going to dinner and the concert. It was meant as a compliment but not a well put one.

I have been invited to dinner and a free concert with some friends. I told one of them that "I have nothing better to do and I will join them." My friend was insulted and said if that was my attitude, I should not come along. Did my friend understand rational decision-making?

A. $10,000

I started a business last year. My revenues were $100,000. My rent and materials costs were $60,000. My best alternative was and is to go to work for a company in a job that would pay me $30,000. The "true" (economic) profits from my business were _____. (hint: when calculating economic profit we would take into account all types of costs). A. $10,000 B. $30,000 C. $40,000 D. $90,000 E. $240,000

D. False. I did pay these costs, but they are sunk and thus not relevant to the decision.

If I have to drop out of college, it will cost me all of the tuition I have paid and the income I could have earned during those years while I was in college. True or false. A. True. These were opportunity costs of staying in college. B. True. These are sunk costs. I cannot change the tuition paid and income lost. So they are not costs of dropping out. C. False. I did not pay these costs. D. False. I did pay these costs, but they are sunk and thus not relevant to the decision.

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

If a good or service is scarce, which of the following is true? A. There is a shortage at the going market price. B. Buyers cannot afford to purchase the product C. We must give something up if we want more of the good. D. It is difficult to find the product in stores. E. Production is very rare.

A. Always do it

If the benefits (correctly defined) of doing something are greater than the costs (correctly defined) of doing whatever it is, what should one do? A. Always do it B. Only decide to do it if it is the best choice C. Only decide to do it if there is no opportunity cost

C. Scarcity

In every economy, resources are limited, but wants are large and increasing. What is this condition called? A. The opportunity cost of resources B. The opportunity cost of wants C. Scarcity D. Marginal cost

Marginal cost and opportunity cost are the same thing. Rational decision making requires one to see if the marginal benefit is greater than the marginal cost. If this is the case, the individual is better off making that decision.

In your own words, summarize the connection between opportunity cost, marginal cost and benefit, and rational decision-making.

C. Part of room and board may be part of the cost.

Is room and board part of the cost of the decision to go to college? A. Yes B. No C. Part of room and board may be part of the cost.

C. No

Is the income you could earn after going to college part of the cost of going to college? A. A portion of it is B. Yes C. No

A. Yes

Is the money you could have earned instead of going to college, part of the cost of going to college? A. Yes B. No C. A portion of it is

A. Yes

Is tuition a part of the cost of deciding to go to college? A. Yes B. No C. Part of room and board may be part of the cost.

A. $8 million

Last year, you purchased land to build a retail store. You paid $20 million for the land. Another business has now offered $8 million for the land and that is the highest price your business should now be able to get for the land. Which of the following costs is relevant for your decision as to whether or not you should build a new retail store? A. $8 million B. $12 million C. $20 million D. $28 million

B. Is the concert worth paying $50 to attend?

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 correctly? A. Is the concert worth paying $100 to attend? B. Is the concert worth paying $50 to attend? C. Is the concert worth paying $150 to attend?

I would work a shift the night of the concert and continue to save up money for a new phone.

Suppose that you are considering purchasing a ticket to go to a concert with some friends. What is your opportunity cost?

A. Zero, plus what I would have done with my time.

Suppose you bought a basketball game ticket with $30 and no refunds are possible. What is your opportunity cost of attending the basketball game? A. Zero, plus what I would have done with my time. B. $30, plus what I would have done with my time. C. $60, plus what I would have done with my time. D. None of the above

D. Not a good decision, based on the assumption that it is free. It is not free.

Suppose your parents inherit your grandparents' house. They decide to move into the house and sell your current house. They did so because the house was free. Good decision? A. A good decision. They will save so much money. B. Maybe a good decision if they want to spend what they could get for your current house. C. Not a good decision. They are giving up the house you grew up in. D. Not a good decision, based on the assumption that it is free. It is not free.

marginal benefit

The increase in benefits resulting from an action, or the increase in benefits resulting from producing one more unit of output; addition to benefits

B. $50 million; $70 million.

The making of the movie Waterworld cost a total of $180 million. It generated a total of $130 million in revenues. $70 million was spent and then the set sank. An additional $60 million was spent to rebuild the set. An additional $50 million was spent to finish the movie. Losses for the producers of Waterworld, if they finished the movie would be _____. If they did not finish the movie, losses would be _____. A. $50 million; $50 million. B. $50 million; $70 million. C. $70 million; $50 million. D. $70 million; $70 million.

B. Yes, it was rational.

The making of the movie Waterworld cost a total of $180 million. It generated a total of $130 million in revenues. $70 million was spent and then the set sank. An additional $60 million was spent to rebuild the set. An additional $50 million was spent to finish the movie. Should they have rebuilt the set and finished the movie? A. No, it was not rational. B. Yes, it was rational. C. I cannot tell.

D. $70 million

The making of the movie Waterworld cost a total of $180 million. It generated a total of $130 million in revenues. $70 million was spent and then the set sank. An additional $60 million was spent to rebuild the set. An additional $50 million was spent to finish the movie. The sunk cost, once the movie set sank, was _______. A. $10 million B. $50 million C. $60 million D. $70 million E. $180 million

E. A, B, or C, but not all of them

The opportunity cost of spending a night with friends is which of the following? A. The movie I could have seen B. The several hours of sleep I could have had C. The better grade I could have earned with more study D. All of the above E. A, B, or C, but not all of them

D. $125

Tickets to a sold-out basketball game originally cost $50 each and cannot be returned. I bought one and now scalpers are willing to pay $125 for the ticket. The cost that should be considered if I am deciding whether or not to go to the game is _____. A. 0 B. $50 C. $75 D. $125 E. $175

B. Cooking dinner for some friends

Tonight I can either (1) go out to dinner and a movie, or (2) cook dinner for some friends, or (3) eat a hamburger at the baseball game. I prefer to do (1), then (2), and finally (3) if I can only do one. If these are my best choices and the dollar cost of each is the same, what would be the opportunity cost of my going out to dinner and a movie? A. A hamburger at the baseball game B. Cooking dinner for some friends C. A hamburger at the baseball game and cooking dinner for some friends

C. $1,100,000

What is the opportunity cost of a small business investing $1 million in a new project that will pay back $1.5 million in one year? The firm's goal is to end the year with the most assets possible. Its other alternatives are: I. Leave $1 million in a bank account and earn $50,000 in interest. II. Invest $1 million in new equipment that will have a value of $1 million at the end of the year and have earned an additional $100,000 in profits during the year What is the opportunity cost of the new project? A. $1,000,000 B. $1,050,000 C. $1,100,000 D. $1,150,000

1. opportunity cost 2. opportunity cost 3. opportunity cost 4. opportunity cost 5. opportunity cost 6. not an opportunity cost 7. not an opportunity cost

What is the opportunity cost of college? Determine whether the following costs are opportunity costs or not. 1. Tuition 2. Student fees 3. Transportation 4. Books 5. Salary 6. Insurance 7. Room and board

reading a book

What is the opportunity cost of washing dishes every night for your family? Not just ½ hour; but what would you do with that time?

A. Zero, plus what I would have done with my time.

What is your opportunity cost of attending the concert in this case? A. Zero, plus what I would have done with my time. B. $50, plus what I would have done with my time. C. $120, plus what I would have done with my time. D. None of the above

If I attend the concert, I would not go to work that night and I would lose out on the money I would make from working.

What is your opportunity cost of attending the concert?

C. Food

Which of the following does not represent an opportunity cost of attending college? A. Tuition paid B. Amount that one could have earned instead of going to college C. Food D. Books purchased at college

C. Because we have not directly paid someone.

Why is it so difficult to consider costs that we have not physically paid as part of the cost of the decision? A. Because they are not actually costs B. Because they will only be costs once they are paid. C. Because we have not directly paid someone.

A. Because they are explicit and we actually handed over a check.

Why is it so difficult to ignore costs we have actually already paid? A. Because they are explicit and we actually handed over a check. B. Because we should not count them as costs. C. Because they are not actually costs.

C. Not use the building. Using the building would mean losing $ .5 million in doing so.

Your college purchased a building east of campus for $500,000. Given changes in the city's real estate market, the current market value of the building is now $2 million. The total value of the use of the building for the college is estimated to be $1.5 million. What should your college do? Explain why. A. Not use the building. It would be a loss of $2 million. B. Use the building. The gain would be $1.5 million. C. Not use the building. Using the building would mean losing $ .5 million in doing so. D. Use the building. They only paid $500,000. It's value is $1.5 million. They gain $1 million.

economics; with; without

______ is a social/behavioral science concerned with all people ______ and __________ jobs

money

________ makes market work better bc save time; makes buying process easier

land

aka natural resources; US - large amounts of land to produce better life

sunk cost

amount you paid for is now irrelevant (paid $50 for concert but can't resell or refund so opportunity cost of attending is $0 and what i would have done with my time); cost that has been incurred and can't be recovered -ex: college - room and board bc would have to pay for home and food regardless

yes bc they could have what you want, but it more common and easier to sell for $ and buy with $

can you barter in markets?

purpose of econ sys: how to produce

choose between combo of machines, labor and land to produce; aim to minimize cost of production; question of resources being wasted

fixed cost

costs that don't change as we make a decision - room and board (have to eat and sleep regardless if home or college)

market economy

decision making decentralized; based on private enterprise; supply goods based on demand and what is supplied depends on what is demanded; income varies based on how much society values you (LeBron James); econ decision made by market forces not govt

command economy

econ effort devoted to goals passed down from ruler/ruling class; Ancient Egypt, Medieval manor, communism; govt decides what g/s produced; Cuba and N Korea

capital

factories, tools, inventories, machines; used in producing other goods and services

circular flow diagram: outer circle

firms produce goods/services and sell to households which pay for goods/services; 2 sides of product market where households demand and firms supply

microeconomics

focuses on actions of individual agents within economy (households, workers, businesses); study of individual markets and consequences, choices made by consumers and firms and role of government in influencing market outcomes -ex: lake = study plant life or fish or trees to understand the food chain as a whole economy = firms hire people if overall econ is healthy

bartering

form of trade; may have to make multiple trades (teach econ for DVD -> DVD for poster -> poster for meal) to get end result (teach econ for meal)

circular flow diagram: inner circle

households sell labor as workers to firms in return for wages, salaries and benefits; 2 sides of labor market where households supply and firms demand

not assessing input/output of product rather using resources you have and creating as much from that as possible

how is economic efficiency different from its scientific definition?

purpose of econ sys: what to produce

how much to produce? want society to use limited resources to produce as many goods/services as possible

decision-making rule

if marginal benefit of potential action > marginal cost then decision should be positive; if opposite then bad decision - ex: one more hour of sailing makes you happy and has low cost (not giving up much) then sail! but if value what you could be doing with the hour then don't sail

marginal cost

increase in costs resulting from an action or increase in benefits resulting from producing one more unit of output; addition of costs; same concept as opportunity cost

not a shortage bc only scarce if you have to give up something to do it -cars are scarce bc have to give up resources to purchase it, doesn't mean there is a shortage

is scarcity the same thing as a shortage? why or why not?

three factors of production

labor force, land/natural resources, capital used to produce goods and services

division of labor: economies of scale

level of production increase, average cost of producing individual units decreases; 100 cars/year = $$$ production cost but factory makes 50,000 cars/year = $ production cost

macroeconomics

looks at economy as whole; broad issues (production growth, # of unemployed and inflation) -ex: lake = entire ecosys, what eats what, how sys stays balanced to help explain plants and animals that live in it economy = whole depends on decisions made by individual houses and businesses

benefit; cost

marginal _______ > marginal _______ = make that decision

complementary

microeconomics and macroeconomics are _________ perspectives

circular flow diagram

model which shows economy as firms and households that interact with two markets (goods and services market and labor market)

model

more applied or empirical representation; used to test theories; represented as graphs, tables and diagrams -ex: architect builds ______ of city block -circular flow diagram

mixed

most economies are _______. for example, US towards market, Europe and Latin Am market but higher govt involvement, China and Russia market and command

traditional economy

oldest econ sys; parts of Asia, Af and S Am; organized way its always been = occupations stay in fam, farmers mostly, consume what you produce; little econ progress

scarcity

our wants are greater than our abilities to satisfy them; demand > supply; reason we need to choose between alternatives ex: labor, tools, land, raw materials -encounter everyday

money aka financial capital

physical capital DOES NOT EQUAL __________

efficiency

production of goods and services in way that will maximize society's satisfaction given existing amount of economic resources available; aka _______ economy will produce what individuals want at least possible cost

purpose of econ sys: for whom to produce

relies on markets as means of deciding who gets what; most products go to those willing and able to pay

division of labor

separation of production process of goods and services in number of tasks performed by different workers, instead of all tasks being done by one person -ex: restaurant has chef, waiter, busboy, greeter

theory

simplified representation of how 2 or more variable interact with each other; purpose to take complex real world issue and simplify it to essentials; abstract representation

division of labor: specialization

small job one worker does where they have an advantage (more skilled); people more productive if ______ in production

trade

specialization requires ______ bc workers use pay received from job to purchase other goods and services

economics

study of how individuals and societies make decisions when faced with limited resources; how choices are made in face of scarcity; way of thinking and decision making

division of labor: specialized workers can learn to produce more quickly and with higher quality

stylists who cut hair, doctors who do heart surgery; suggest ways to do task faster; business focuses on one product then will be more successful

labor force

those with job and who want job but don't have one; US has large one in wide variety

most: Hong Kong, Singapore, New Zealand, Australia, Switzerland least: Zimbabwe, Venezuela, Cuba, North Korea

what are the most and least economically free?

-private property rights and contracts -monetary system -unemployment and capacity utilization -competition -incentives -fairness

what are the primary economic roles for government?

1. what to produce 2. how to produce it 3. for whom to produce

what are the three questions to describe purpose of econ sys?

1. specialization 2. specialized workers learn to produce more quickly and with higher quality 3. economies of scale

what are the three reasons division of labor increases production?

traditional, command, and market

what are the three ways societies have organized economic systems?

about money or finance, business, forecasting, math or accounting

what is economics not?

B. $10

what is the cost per shirt before the increase in production? Part of the information is repeated for you below. A small clothing firm currently produces 50,000 shirts and blouses per month. The costs of its factory, raw materials, and labor is $500,000 per month. If it is to increase production by 5,000, that requires an additional labor and raw material expense of $100,000. A. $5 B. $10 C. $20 D. $50 E. $100

opportunity cost

what one actually gives up doing when making a choice; next best alternative; true cost -ex: college - tuition, transportation, books, salary, room and board

why wealthiest nation has unemployment? why taxes? why movie theater decrease prices for elderly but not youth?

what questions and ideas does economics look at?

monetary cost

what you actually pay but opportunity cost can be a situation and isn't about paying

production; efficiency

when a task is divided it leads to greater ____________ and _________

markets

where we trade; US vast majority of econ decisions made here; not necessarily physical places (ie online); gathering of buyers and sellers when price and quantities determined and exchanged

learn a new set of tools to use for professional, personal, business, political decision making to apply tools to social and economic problems and development; learn to make and how to make rational decisions

why do we study economics?