Microeconomics (Hirascau)

The individual supply curve plots the __ a person plans to sell at __price, holding all other factors constant (ceteris paribus).

quantity, each

Parallels Between Demand and Supply A fall in price causes... Demand - A movement along the demand curve, __ Supply - A movement along the demand curve, __

raising the quantity demanded reducing the quantity supplied

Parallels Between Demand and Supply Your Objective: Demand - Maximize __ __ Supply - Maximize __

economic surplus, profit

The Law of Supply: As the price rises, the quantity supplied rises. Does it work vice a versa?

equivalently, as the price falls, the quantity supplied falls

You should break "__ __" questions into a series of smaller, or marginal, decisions weighing the __ __ and __ __.

how many, marginal benefits, marginal costs

If BP does not expand production,

it will not incur these costs.

Your own choices are all connected because you have

limited resources:

Your decision on how much time to dedicate to studying economics affects the time available for studying psychology because you have

limited time

Following this rule does what?

maximizes your economic surplus as a buyer!

Following this rule __ as a seller

maximizes your profits

Farmer Example: You could use your machinery and land to grow corn or wheat. Suppose the price of corn rises. Now corn has become the __ attractive product to sell. As such, your quantity of corn supplied will __, and your supply of wheat will __.

more, rise decrease

The opportunity cost is the __ __ __ you had to give up to pursue your choice

most valuable alternative

Costs are not always __

obvious

Changes in prices and opportunities in __ __ affect the choices you might make in __ __:

one market, other markets

Do not incorporate __, __ __into your current cost-benefit analysis.

past, irreversible costs

Example of Network Effect

In the United States, many young people use Instagram, Snapchat, and Facebook. These social media platforms are used because other people use them. However, in China, WeChat is one of the most popular platforms (and KakaoTalk for South Korea)

In a perfectly competitive market, there are many/few sellers, each selling distinct/identical products.

many, identical

Economic surplus is maximized when the

marginal benefit equals the marginal cost.

Hire the additional worker if the __ __ exceeds the __ __.

marginal benefit, marginal cost

Example of your other choices?

you can't take other classes that are offered at the same time

When does change in the quantity supplied take place?

The change in quantity is associated with movement along a fixed supply curve.

Ceterius Paribus

a Latin phrase that means "all other things held constant"

Increase in supply is a supply curve shift to

the right

Opportunity cost

The true cost of something is the next best alternative you have to give up to get it

When does movement along the supply curve take place?

When a price change causes a movement from one point on a fixed supply curve to another point on the same curve

3 aspects that area associated with defining the Individual demand curve.

1. Individual 2. Demand 3. Curve

Store owners already understand diminishing marginal benefits, which is why we often see ?

"Buy one, get one half-off.

When drawing a supply curve, think:

"Supply to the Sky!"

When taking into consideration of willingness to pay do not confuse

"want and willing to pay"

Marah is deciding whether or not to open a lemonade stand. She expects to sell 20 cups of lemonade for $1 per cup. She already made a sign that cost her $10 and will have $15 worth of additional costs for cups and lemonade mix if she decides to open the stand. a. If Marah decides to open the lemonade stand, how much profit will she earn?

$-5

Christine is the general manager of a local automated car wash. The market she operates in is perfectly competitive. All of her competitors in the area charge $7 per car wash, which is also her marginal cost per wash. c. Christine's profit maximizing price is ____ $5, $7, $8

$7

3 aspects of the Individual supply curve

1. Individual 2. Supply 3. Curve

perfectly competitive market (2 aspects)

1. all firms in an industry sell an identical good 2. there are many buyers and sellers, each of whom is small relative to the size of the market

Examples of complementary goods (2)

1. iPhone and iPhone case 2. Cereal and Milk

Jia is considering whether to go out to dinner at a restaurant with her friend. The meal is expected to cost $40, Jia typically leaves a 20% tip, and an Uber will cost $5 each way. Jia values the restaurant meal at $25. Jia enjoys her friend's company and is willing to pay $30 just to spend an evening with her. If Jia does not go out to the restaurant, she will eat at home, using groceries that cost her $8. a. Calculate Jia's costs associated with going out to dinner with her friend. (use pen and paper) b. Calculate Jia's benefits associated with going out to dinner with her friend. (use pen and paper)

58,63

Law of Supply:

: A higher price leads businesses to supply a larger quantity

Network Effect:

: When a good becomes more useful because other people use it. If more people buy such a good, your demand for it will also increase

Consider the change in market conditions in each of the given scenarios. Use the graphs to illustrate whether the changing market conditions will result in a change in supply or quantity supplied. If the change in market conditions results in a change in supply, shift the supply curve appropriately, but leave the price line unchanged. If the change in market conditions results in a change in quantity supplied, adjust the price line appropriately, but leave the supply curve unchanged. a. An increase in the price of corn used in the production of ethanol reduces the amount of corn available for use as livestock feed. What happens to the supply corn?

A curve shift to the left

Toolkit

Are methods to help you understand your decisions and the decisions of others

As your income increases, you buy __ inferior goods. A. more B. less C. same amount

B. less

Example of this taking place

BP Gas Example: If the chemical additives used in the refinery process get more expensive, then BP will decrease its supply of gas.

In other words, your demand curve visually summarizes your __ __, and how your plans vary with __

buying plans, price

If the price of data plans rise, what response do you expect in the market for smartphones? Shift the demand curve to show what happens in the market for smartphones when the price of data plans rise. What happens to demand?

Demand shifts to the left

Your choices are also interdependent across __ __

Different goods

financial vs nonfinancial costs

Financial costs are the costs that involve money or prices, such as expenses, revenues, profits, losses, etc. Non-financial costs are the costs that do not involve money or prices, but other things that are given up in a transaction, such as time, effort, quality, reputation, etc

c. Based on the information, Jia should 1. Go out to dinner with her friend 2. Eat at home

Go out to dinner with her friend

Complements-in-Production:

Goods that are made together.

Complementary Goods:

Goods that go well together

Substitute Goods:

Goods that replace each other.

When there is marginal diminishing benefit what happens on a graph?

Hence, your demand (and marginal benefit) curve is downward-sloping.

Dilemma principle:

How do you compare the benefit with the costs?

If the price of gasoline rises, what response do you expect in the market for SUVs? Shift the demand curve to show what happens in the market for SUVs when the price of gasoline rises. What happens to demand?

It shifts to the left

b. The government requires all coffee houses to post warnings to consumers about the cancer-causing components of coffee. What happens to demand?

It shifts to the left

Average hourly wages increase, what happens to demand?

It shifts to the right

Examples of Production Resources

Machinery and labor

Scenario 3: You bought a movie ticket for $12. Within the first 30 minutes, you realize the movie is horrible. Question: Do you continue watching the movie, or leave? Answer:

Most likely, whatever you do upon leaving the movie theater will be a more enjoyable use of your time, so leave

Five factors shift the demand curve. - Be Careful: A change in the price does

NOT shift supply

Does this mean price changes?

No!!!

Which decisions are marginal decisions? Should I attend class? and why?

Not marginal. This is an either/or question.

Equilibriums/shortages/surpluses lead the price to rise and Equilibriums/shortages/surpluses lead the price to fall

Shortages, surpluses

Quantity Decisions: Instead of: "how many workers should I hire?" Simplify to: ""

Should I hire one more worker?

Example of diminishing marginal product

To increase production, you need to hire more cooks, but the kitchen is only so big. The new workers don't have sufficient space to work in the kitchen. They cannot make sizeable contributions to output

Example of developments in other markets?

You are a more attractive intern/employee in the labor market.

Attending School - Tuition + books and cost $60,000 - You quit your job - Apartment and food cost $24,000 - 10 hours per day studying Working Full Time - You do not pay tuition + and schoolbook costs - You earn $70,000 from your job - Apartment and food cost $24,000 - 10 hours per day working What are Not all-time costs (nonfinancial)?

You do not count all 10 hours of study time as an opportunity cost since your job requires 10 hours of your time. Thus, relative to your next best alternative, the time spent studying is not an opportunity cost of school.

Example of expectations about the future?

You fulfill a prerequisite needed for enrollment in future classes

Why are these an example of fixed costs?

You pay these costs regardless of whether you expand production or not

The Interdependence Principle

Your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future. When any of these factors changes, your best choice might change.

You are willing to pay full price for a new shirt, but you end up finding it half-off from an online retailer. Applying the cost-benefit principle, determine what has changed. - Your cost has decreased, but your benefit remains the same. - Your cost and benefit have both decreased. - You receive a greater benefit from the purchase because you got the shirt on sale. - You receive a lesser benefit from the purchase because you got the shirt on sale.

Your cost has decreased, but your benefit remains the same.

Example of Congestion Effect

Your demand for driving on a particular road declines if you know many other people are also taking that route creating a traffic jam. Hence you try and switch to a less congested route.

What happened in the previous question?

Your expectations about a future toilet paper shortage increased your current demand for toilet paper

Caution when estimating market demand: Do not

add up the price each individual pays at each quantity. Instead, the correct approach is to add up the quantities at each price

Your marginal costs are your

additional variable costs

Thinking through the principles provides useful

advice and helpful forecasts

d. Brendon and Jessica are deciding whether to purchase a second vehicle. The four core principles of economics a. apply because Brendon and Jessica want a second vehicle. b. apply because Brendon and Jessica will have to give up something else to purchase the second vehicle. c. do not apply because Brendon and Jessica do not need a second vehicle d. do not apply because there is good public transportation where Brendon and Jessica live.

b. Apply because Brendon and Jessica will have to give up something else to purchase the second vehicle.

Ivan has inherited his mother'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 for one, so they agree on a price of $55,000 for the car. ____ willing to voluntarily engage in this exchange. a. Only Ivan is b. Ivan and Samantha are both c. Neither Ivan and Samantha are both d. Only Samantha is

b. Ivan and Samantha are both

Lee watches a beautiful sunset from the back porch of his house. The four core principles of economics a. do not apply because no decision is being made. b. apply because Lee could have been doing something else. c. do not apply because no money is involved. d. apply because Janet is also watching the sunset.

b. apply because Lee could have been doing something else.

b. Select two factors that the analysts want to keep in mind to create the most accurate demand estimates. a. information about climate change b. existing competition in the market c. consumer demographic information d. cost of inputs to production

b. existing competition in the market c. consumer demographic information

Edward charges $100 to landscape his neighbors' lawns. His neighbors should hire Edward if the marginal _______ of having their lawn landscaped is _____ than $100. first - benefit - cost second -less -greater

benefit, greater

Pursue the choice if the __ are at__ __ __ __ as the costs

benefits, at least as large

When any of these factors changes, your

best choice might change.

If you understand how sellers are thinking, then you can

better forecast their decisions

If BP expands production, it will need to...

buy more crude oil, buy more chemical additives, pay its workers to work overtime

If the marginal benefit exceeds the marginal cost, then

buy that additional unit.

Parallels Between Demand and Supply Quantity decision: Demand - Rational Rule for __ Supply - Rational Rule for __

buyers, sellers

A change in price causes a movement along the supply curve, yielding a

change in the quantity supplied.

Boeing is a producer of wide‑body aircraft. The manufacturing plant used to produce aircraft is a ____ cost for Boeing. The cost of the manufacturing plant ____ be included in the opportunity cost of producing an additional aircraft. variable or fixed should or should not

fixed, should not

You should avoid __ __ altering your own decisions

framing effects

"__ __" à consider both __ and __ aspect

full set, financial, nonfinancial

Whenever the benefits of a choice exceed the cost, it is a __ __, and what is this called?

good choice, cost benefit principle

Scenario: Suppose you rank the options as follows: 1. Work on homework 2. Hang out with friends 3. Watch something on Netflix 4. Take a nap Given the ranking above, you choose to work on homework for the hour in between classes. What was the opportunity cost of your choice? and why?

hanging out with friends because you worked on hw in between classes

As a consumer, think about how you react to

high versus low prices:

As the price rises higher and higher your quantity supplied gets

higher and higher

Every time you draw an individual's supply curve, you are drawing this person's selling plans while also doing what?

holding other things constant.

Parallels Between Demand and Supply The market curve Demand - Sum of the quantity each __ Supply - Sum of the quantity each __

individual consumer demands, at each price individual business supplies, at each price

Microeconomics regards __ while macroeconomics regards

individual decisions and their implications for specific markets, the process of tracing broader implications of individual decisions across the whole economy

If something important changed (e.g., Darren lost his job), then Darren's buying plans would change, which means his

individual demand curve would change

If new sellers enter the market, the total quantity supplied at each price __

increases

- Akari's boss has offered to pay her for up to 5 hours of overtime today. Akari has already been working for 10 hours and is deciding whether to work more hours. When Akari considers whether she should work one more hour, she is applying the____ principle marginal or interdependence

marginal

Each page that you read and each practice problem that you complete will help you increase your understanding of the material." This statement is related to the __ principle.

marginal

b. Niko, a local UPS manager, is trying to decide whether she should pay for additional trucks and drivers. When Niko considers whether she should pay for one more truck and driver, she is applying the ____ principle. interdependence or marginal

marginal

- Akari's boss has offered to pay her for up to 5 hours of overtime today. Akari has already been working for 10 hours and is deciding whether to work more hours. If Akari decides to work overtime because her next best alternative is watching TV at home, she is applying the ____ principle. cost-benefit or opportunity cost

opportunity cost

Scenario: : You have a 1-hour break between classes. - You have many ways you could spend this time - Hang out with friends - Work on homework - Take a nap - Watch something on Netflix - Whatever you choose to do, you are implicitly choosing not to do something else. That's your __ __

opportunity cost

Moving along your PPF reveals your __ __

opportunity costs

The production possibilities frontier (PPF) can be used to visualize the

opportunity costs we face and alternative outputs

Changes in __ cause shifts in supply

other factors

BP, just like many businesses, operates in a

perfectly competitive market:

Parallels Between Demand and Supply A rise in price causes... Demand - A movement along the demand curve, __ Supply - A movement along the demand curve, __

reducing the quantity demanded raising the quantity supplied

If the price of that extra gallon exceeds the marginal cost, then

revenues will rise by at least as much as costs

The market for coffee is at the equilibrium price and a labor shortage is at the equilibrium price and a labor shortage drives up the wages of baristas who make the coffee. As a result, the price of coffee will rise/fall, and the quantity of coffee will rise/fall

rise, fall

Rising input costs also lead to

rising marginal costs

In Market Supply Curve, lower prices means it's

s less profitable to be a supplier.

c. Your choice in parts 1. and 2. should be the same/different in both scenarios. However some people may ignore costs and focus on the percentage saved because framing effects/marginal costs/sunk costs change how people view the decision.

same, framing effects

You buy an expensive mattress on clearance which is nonreturnable. After a few weeks, you realize it's very uncomfortable and you are not getting a good night's sleep because of the mattress. Thinking like an economist, you should ignore the _______ costs and get a new mattress. - opportunity - sunk - marginal

sunk

Transactions can also generate economic surplus for

suppliers

Productivity growth is often driven by

technological change

What are trade offs

the alternative choices people make in an economic decision

How to tell if a graph follows the law of supply

the graph moves upward

Decrease in supply is a supply curve shift to

the left

What is opportunity cost?

the loss of potential gain from other alternatives when one alternative is chosen.

The price you are willing to pay for each unit is informed by

the marginal benefit you associated with that unit.

The price you are willing to sell each unit for is informed by

the marginal cost of producing that unit

Based on last question: If the price of gas is $3, then the marginal benefit of producing another gallon is $3. Your marginal benefit is

the market price

In cost-benefit analysis, money is

the measuring stick, not the objective.

At each price, the total quantity of gas demanded is

the sum of the quantity that each potential customer will demand at that price.

The PPF illustrates:

the trade-offs you confront when deciding how to allocate your scarce resources (like your time)

Example of the choice's others make.

there is now one less spot available to others

Your decisions are linked through __. If you expect the price of your product to rise next year, then... assuming your product is __

time, you want to store your product to sell next year (at the high price, storable

Five factors shift the demand curve. Be Careful: The effect of changing the price of a related output depends on whether the

two products are complements or substitutes in production.

Cost-benefit analysis still allows for

unselfish decisions.

Rising marginal costs explain why the supply curve is

upward-sloping.

Marginal costs include __ but exclude __

variable costs, fixed costs

Four-step process to estimate market demand.

1. Add up the quantities from each consumer at each price. 2. When the price of the good changes, you simply move along the existing demand curve to that new price point. 3. Move from one point to another point. 4. This price change triggers a change in the quantity demanded (not a change in demand).

Rational Rule: (idea)

If something is worth doing, keep doing it until your marginal benefits equal your marginal costs.

3 examples of complements in production

1. Asphalt is a byproduct of producing oil at a petroleum refinery. 2. A byproduct of beef is leather. 3. Donut holes are a byproduct of donuts (they are made together!).

2 reasons why the Market Supply Curve Is Upward-Slopping

1. Because the market supply curve is made from adding up individual supply curves at each price, it inherits many of the same characteristics 2. A higher price means that it's more profitable to be a supplier in that industry

Example of price for complementary goods increase

If the price of hot dogs rises, then I will buy fewer hot dogs and fewer hot dog buns

3 steps in Visualizing the marginal principle

1. Determine what type of choice you face 2. Weigh the marginal benefits against the marginal costs: 3. Apply the marginal principle iteratively until you eventually decide against buying one more unit, and then stop.

Example of expectations about future prices influencing demand

If you see gas prices are high right now, you may decide to wait another few days before filling your car with gas.

Two examples of dependence between markets

1. Declining interest rates in the credit market make it less expensive to get a mortgage, which might lead you to buy a home in the housing market. 2. Your decision to join the labor market as a worker depends on the availability of high-quality, low-cost childcare options in the childcare market.

4 aspects of The Cost-Benefit Principle

1. Defining and practicing the cost-benefit principle 2. Willingness to pay 3. Economic Surplus 4. Understanding and avoiding framing effects

Willingness to pay idea

In order to convert nonfinancial costs or benefits into their monetary equivalent

What are the 4 aspects of the interdependence rule?

1. Dependencies between each of your individual choices 2. Dependencies between people or businesses in the same market 3. Dependencies between markets 4. Dependencies through time

The five core principles that provide the foundation of all economic analysis

1. A principled approach to economics 2. The marginal principle 3. Cost-benefit principle 4. The opportunity cost principle 5. Interdependence Principle

2 things to do when understanding someone demand?

1. Understand what happens when the price (and only the price) changes 2. Push these other factors aside for the time being when drawing an individual's demand curve

2 Framing Effect Examples

1. When an item's price tag shows both the original price and the sale price. 2. A restaurant has one outrageously priced item on the menu, making everything else on the menu seem cheap by comparison.

In one month, the quantity of movie tickets you buy at any given price might change if (2)

1. You get a pay raise 2. Netflix premiers a great new series

Interdependence principle: Your best choice depends on... what four things?

1. Your other choices 2. The choices others make 3. Developments in the markets 4. and expectations about the future

a. Consider the four-step process that many companies follow to estimate the market demand curve for their product. Place the steps in order, with the first step in the highest position and the last step in the lowest position. First to last step sort - plot the demand curve - survey the customers - scale up the quantities demanded by the survey respondents - add up the total quantity demanded by customers at each price point

1. survey the customers 2. add up the total quantity demanded by customers at each price point 3. scale up the quantities demanded by the survey respondents 4. plot the demand curve

b. How much economic surplus, if any, does Ivan gain from engaging in this exchange? (You can look at the previous question and do it on pen and paper)

10,000

Suppose there are 100 other oil refineries that are making the same supply decisions as BP, then at any given price the quantity supplied will be

100 times the quantity BP supplies

c. How much economic surplus, if any, does Samantha gain from engaging in this exchange? (You can look at the previous question and do it on pen and paper)

17,000

b. The core principle that best explains this is the 1. Marginal Principle 2. Opportunity Cost Principle 3. Cost-Benefit Principle

2. Opportunity Cost Principle

Sunk cost

A cost that has incurred and cannot be reversed. A sunk cost exists in whatever choice you make, and hence it is not an opportunity cost.

Inferior Good

A good for which higher income causes a decrease in demand.

Normal Good:

A good for which higher income causes an increase in demand.

Individual supply curve:

A graph plotting the quantity of an item that a business plans to sell at each price.

Market demand curve

A graph plotting the total quantity of an item demanded by the entire market, at each price

Market supply curve:

A graph plotting the total quantity of an item supplied by the entire market, at each price.

Shift in the demand curve:

A movement of the demand curve itself.

Example of For each price, add up total quantity demanded by all customers.

Add up how many gallons of gas each of your 300 customers want to buy at each and every price.

Substitutes-in-Production:

Alternative uses of your resources

Cost-benefit principle

An individual (or a firm or a society) should take an action if, and only if, the extra benefits from taking the action are at least as great as the extra costs.

What is the Cost-benefit principle?

An individual (or firm or society) should act if, and only if, the extra benefits from taking the action are greater or at least equal to the costs.

Marginal Principle

Decisions about quantities are best made incrementally.

The Marginal Principle (principle)

Decisions about quantities are best made incrementally. You should break "how many" decisions down into a series of smaller, or marginal decisions.

Example of price change with substitute goods

If Pizza Hut raises their prices, then my demand for Domino's pizza will increase.

What to do when you Determine what type of choice you face

If it is a "how many?" decision • break it down into a series of smaller marginal decisions ("should I buy one more?"

"The time you will spend reading this textbook can also be used to study for your chemistry exam." This statement is related to the __ principle.

Opportunity Cost

When you decide whether to buy takeout for lunch or to make yourself a grilled cheese sandwich, you are applying the A. marginal principle. B. interdependence principle. C. opportunity cost principle. D. cost-benefit principle.

Opportunity cost principle

Push these other factors aside for the time being when drawing an individual's supply curve. What are they?

Things that change the price of things

b. Apple increases the price of the newest iPhone by 10%, how come the demand doesn't decrease?

Samsung Galaxy smartphones and iPhones are substitutes in consumption so the demand is bound to shift to the right

Opportunity cost principle

Says that the true cost of something is the best alternative yu give up to get it.

Example of: Scale up the quantities to represent the whole market.

Scale up! Our survey of 300 people is intended to be representative of 300 million potential customers. Thus, we need to scale up our quantities by 1 million so that they represent the whole market.

Economics is a

Way of thinking

What happened in the previous question?

Your expectations about future prices decreased your current demand for gas.

Idea of Substitutes-in-Production:

Your supply of a good will decrease if the price of a substitute-in-production rises

Idea of Complements in Production

Your supply of a good will increase if the price of a complement-in-production rises

What is a sunk cost?

a cost that has already been committed and cannot be recovered

If the only thing changing is the price of the good itself, then you are thinking about a __. This is a change in the __

a movement along the supply curve, quantity demanded

According to the Market demand curve, a change in price causes a movement __ the demand curve, yielding a change in the __

along, quantity demanded

When marginal costs of production rise, this translates into

an upward-slopping supply curve

Move from one point on the existing demand curve to

another point.

When you do marginal analysis, you iteratively __ __ __ to figure out if

apply cost benefit, "one more unit" is a good choice.

When evaluating demand, we are examining __ __ (as opposed to __ __)

buying decisions. selling decisions

The demand curve is just a set of __ __. It illustrates the __ people plan to buy at various prices, holding other factors constant (__ __).

buying plans, quantity, ceteris paribus

b. An increase in graduation rates for teachers saturates the market for preschool teachers. This decreases the wages of teachers. This scenario is an example of dependencies. a. Between people or businesses in the same market b. Between each of the markets c.Between markets d. Through time

c. Between markets

Because there are many small firms, all selling the same product, an individual seller

cannot set their own price

If other factors change...then selling plans __ and the supply curve __

change, changes

You generate economic surplus every time you make a decision in accordance with the

cost-benefit principle

Good decision makers __ sunk costs

ignore

Cost-benefit principle (principle): Costs and benefits are the __ that shape decisions.

incentives

Decreasing the price of the PS4 will __ the demand for PS+ subscriptions. Sony expects that revenue from recurring PS+ subscriptions will be larger than the loss in revenue from PS4 sales.

increase

Maria is an industrial engineer at a Toyota plant. Indicate how Maria should change her production plans in response to each change in market conditions. b. Workers unionize and demand a 12% across-the-board raise. As a result, the cost of production will __ and Toyota should __ its supply. increase or decrease? increase or decrease?

increase, decrease

Every additional unit you acquire using the marginal principle will __ your economic surplus (recall: __ __= __ - __)

increase, economic surplus, benefits, costs

Economists know that many factors other than price can

influence your demand.

To produce any given good or service, many __ will be used in the production process

inputs

- Akari's boss has offered to pay her for up to 5 hours of overtime today. Akari has already been working for 10 hours and is deciding whether to work more hours. If Akari decides to work the extra hours because she does not think any overtime will be offered in the near future, she is applying the ____ principle interdependence or opportunity cost

interdependence

Should you start a new business, or stay in your existing job? If you quit your current job, you are giving up the __ that comes with it. __ are an opportunity cost?

paycheck, forgone wages

Outcome: You decide to charge the prevailing market price and sell as much as you want. You are a

price-taker.

In perfectly competitive markets, sellers are

price-takers

The market demand curve visually summarizes these

purchasing decisions across the various price points

If the price of corn rises from $4 to $8, the farmer will put their resources toward corn production. This is a rise in

quantity of corn supplied.

Changes in price cause changes in

quantity supplied

the higher the price, the higher the ____

quantity supplied

Examples of inputs

raw materials (metals, glass, plastic, etc.), as well as machinery and labor.

Productivity growth __ the marginal cost of production, such that sellers are __willing to supply at any given price (i.e., supply __)

reduces, more, increases

Competing against other potential employees for a job is an example of the ____ set of interdependencies. - first - second - third - fourth

second

In other words, the supply curve visually summarizes the

selling plans of a business, and how those plans vary with price:

This causes the supply curve to

shift to the left

Should you invest your money in this new business, or leave it in the bank (or the stock market) If you take your money out of the bank (or __ __), then you will not be earning __ on that money. This __ __ (or the forgone investment opportunity) is an opportunity cost associated with starting your new business.

stock market, interest, forgone interest

b. In the market for transportation, taking the train and taking a plane are complements or substitutes

substitutes

Should you produce one more gallon of gas? Yes, if the benefits of that extra gallon exceeds the costs. Do the marginal benefits exceed the marginal costs? The marginal benefit of the extra gallon is

the amount of money you get for it

Individual supply curves are

the building blocks of market supply:

The market demand summarizes

the entire relationship between price and quantity demand

One example cited in the podcast of a factor that may cloud your decision-making is. - the interdependence principle. - the cost-benefit principle. - supply concerns. - the framing effect.

the framing effect

In the Rational Rule for Sellers in Competitive Markets, supply summarizes

the price at which you are willing to sell each quantity.

as the price rises, the?

the quantity demanded falls

This price change triggers a change in

the quantity supplied (not a change in supply)

financial costs

total economic resources that must be spent or invested as a consumer learns how to obtain value from a new product choice

Every choice involves a __. Every choice has a __.

trade off, cost

Scarcity makes opportunity costs (__) __.

tradeoffs, inescapable

Boeing is a producer of wide‑body aircraft. The labor used to produce the aircraft is a ____ cost for Boeing. Labor costs ____ be included in the opportunity cost of producing an additional aircraft. variable or fixed should or should not

variabe, should

Boeing is a producer of wide‑body aircraft. The cost of the seats that are installed in each aircraft is a variable cost for Boeing. The cost of the seats should be included in the opportunity cost of producing an additional aircraft. variable or fixed should or should not

variable, should

Example of supply curve is just a set of selling plans; Bakery Example: In one month, the quantity of bread you sell at any given price might change if

wheat becomes more expensive and or your oven breaks down.

Demand illustrates the price at which

you are willing to buy each quantity

How will your buying plans change if you start earning a lot more money? If __, then the item is a normal good

you buy more after getting richer

Based on the sunk cost analogy why would this decision be best?

Do not let the $12 sunk cost guilt you into staying. Whether you stay or leave, the $12 has been spent.

3 examples of sellers experiment

1. Produce a bit more or a bit less each week to see how it affects their profits. 2. Eventually land on the profit-maximizing quantity. 3. End up making the same supply choices as if they were following the Rational Rule for Sellers

Things to go over

1. Questions THAT WERE ON THE 3RD ASSIGNMENT THAT REQUIRED A LOT OF MATH 2. Production Possibilities Frontier (1 of 3) {Chapter 1} 3. Marginal Principal 4. Running a Restaurant: Costs and Benefits of an Additional Worker (1 of 4) 5. Review for everything 6. Supply For Chapter 3 assignment (next week) 7. All questions on all slides regarding graphs 8. Questions 14, 8 on 1st assignment of chapter 2 9. Ask the teacher about 9, 10, and 15 1st assignment of chapter 2 10. question 7, 12 of chapter 3 assignment

Your friend remarks that longer movies are a better deal than shorter movies because the ticket price is the same in both cases. Therefore, a longer movie provides more benefits for the same cost as a shorter movie. Which of the following is the best argument against your friend's claim that longer movies provide more benefits than shorter movies? Based on the A. Opportunity cost principle, the length of the movie does not matter as long as watching a movie is the best way to spend your time compared to other alternatives. B. Cost‑benefit principle, the benefits of a longer movie exceed the costs when compared to a shorter movie. C. Marginal principle, You should only continue to watch an additional movie if it is shorter than the first movie. D. Interdependence principle, longer movies are affected by the market for shorter movies.

A. Opportunity cost principle, the length of the movie does not matter as long as watching a movie is the best way to spend your time compared to other alternatives.

Example of increase of demand

If Netflix does not have any good shows this month, then I will demand more movie tickets at each and every price

2. You are about to buy a laptop for $1,000 and the sales-person tells you that the model you want to buy is on sale for $995 at the store's other branch, which is a 20 minute drive away. You should make the trip to the other branch if: A. Your cost of making the trip is less than $5 B. Your cost of making the trip is more than $5

A. Your cost of making the trip is less than $5

Why?

Because each purchase you make in accordance with this rule will boost your total benefits more than it boosts your total costs.

Why does every choice involve a trade-off?

Because everyone deals with issues of scarcity

Why isn't BP choosing its own price?

Because there are many other gasoline companies who can provide the same product

Why?

Because you expand production whenever it will boost your profits

The Rational Rule for Buyers:

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

The Rational Rule for Buyers:

Buy more of an item if the marginal benefit of one more is greater than (or equal to) the price.

Result of imperfection

Buyers and sellers may no longer be price-takers.

The six factors that shift the market demand curve. What is something that doesn't?

Change in price

Solution principle

Convert costs and benefits into dollars by evaluating your willingness to pay

Your best choice depends on many other factors beyond price. When these other factors change, so might your __ decisions

Demand

Coffee houses increase the price of coffee in order to pay their baristas more. What happens to demand?

Demand doesn't change but the price increases and quantity decreases

What is A Principled Approach to Economics

Economics is a lens through which to examine and understand your decisions and the decisions of others.

Any allocation of time such that you are on your PPF (line) is an __ use of your resources (A, B, C)

Efficient

The opportunity cost principle allows __ to evaluate whether or not to __

Entrepreneurs, start a business.

The interdependence principle says that

Everything is connected

Example of this taking place

If BP's engineering team discovers a more efficient way to refine crude oil into gas, then BP will increase its supply of gas.

Imagine the price of one of these inputs rose. What would happen to the wage you pay your workers?

It would go up (i.e., the price of labor increased).

If you are willing to pay up to $8 for your first cup of coffee, the __ __ of your first cup of coffee is $8. A. Opportunity cost B. Marginal Benefit C. Marginal Cost

Marginal Benefit

Keep buying until Price =

Marginal Benefit

Parallels Between Demand and Supply Quantity decision implies Demand - Demand curve is __ Supply - Supply curve is __

Marginal Benefit Curve Marginal Cost Curve

In the Rational Rule for Sellers in Competitive Markets, Keep producing until Price =

Marginal Cost

Keep producing until Price =

Marginal Cost

Which decisions are marginal decisions? How many pairs of shoes should I buy? and why?

Marginal! Should I buy one more pair of shoes?

Which decisions are marginal decisions? How many slices of pizza should I eat? and why?

Marginal! Should I eat one more slice of pizza?

Which decisions are marginal decisions? How many classes should I take this semester? and why?

Marginal! Should I take one more class?

Which decisions are marginal decisions? How many hours should I spend watching Netflix? and why?

Marginal! Should I watch one more episode?

What is the framing effect?

People's choices within a given set of options change based on how the options are presented.

Productivity growth:

Producing more output with fewer inputs

Fixed costs example

Refinery building, and the land the building is on, the equipment used in the refinery process, CEO salary

Scarcity

Resources are limited; therefore, any resources you spend pursuing one activity leaves fewer resources to pursue others.

Example of: Ask each person the quantity they will buy at each price.

Suppose you survey a representative sample of 300 potential customers, asking each person about their gas purchasing plans at various price points

Attending School - Tuition + books and cost $60,000 - You quit your job - Apartment and food cost $24,000 - 10 hours per day studying Working Full Time - You do not pay tuition + schoolbook costs - You earn $70,000 from your job - Apartment and food cost $24,000 - 10 hours per day working What are the Not all out-of-pocket costs?

The $24,000 spent on apartment and food is spent either way, and therefore is not an opportunity cost of attending school

Change in the quantity demanded:

The change in the quantity associated with movement along a fixed demand curve.

Diminishing marginal product:

The marginal product of an input declines as you use more of that input.

The Law of Supply:

The tendency for quantity supplied to be higher when the price is higher.

Law of demand

The tendency for the quantity demanded to be higher when the price is lower.

Economic Surplus

The total benefits minus the total costs flowing from a decision. It measures how much a decision has improved your well-being.

Another example of expectations about future prices influencing demand

Think back to the early months of the pandemic and the toilet paper shortage. Initially, when you saw toilet paper was available to buy again, you probably bought more rolls than usual. You wanted to stock up while you could

Fixed costs:

Those costs that don't vary when you change the quantity of output you produce

Variable costs:

Those costs — like labor and raw material — that vary with the quantity of output you produce.

Curve refers to

We are graphing things (sometimes these curves are straight lines)

Individual refers to?

We are referring to one person (as opposed to many people)

Supply refers to

What we are examining selling decisions (as opposed to buying decisions)

Individual refers to

What we are referring to one business (as opposed to many businesses).

Scarcity

When resources are limited, therefore any resource you spend pursuing one actively leaves fewer resources to pursue others. Scarcity implies that you always face trade offs.

b. Based on this information, Marah ____ open the lemonade stand. a. should b. should not

a.

Consider the following statement: "An increase in the cost of oil will cause the price of a plane ticket to increase. This increase in price will cause a decrease in demand for airline travel and a leftward shift in the demand curve." What is the flaw of this reasoning? a. An increase in the price of a ticket will not cause a decrease in demand, but rather a decrease in quantity demanded. b. The increase in the cost of oil will cause a decrease in the price of a plane ticket. c. A decrease in demand will shift the curve rightward, not leftward. d. The cost of oil affects supply and not demand so prices of tickets will remain the same.

a. An increase in the price of a ticket will not cause a decrease in demand, but rather a decrease in quantity demanded.

The choices made by other __ __(__, __, __, etc.) shape the choices available to you

economic actors, people, businesses, governments

"The market supply for natural gas is the sum of all prices that natural gas producers are willing and able to sell at for every quantity." What is the flaw in this statement? a. It should state that market supply is the sum of the quantities of natural gas that producers are willing and able to sell at every price. b. It should state that market supply is the quantity of natural gas that producers are willing and able to sell at one specific price. c. It should state that market supply is the price of natural gas that one firm is willing and able to provide a specified quantity of its product at. d. There is no flaw in this statement.

a. It should state that market supply is the sum of the quantities of natural gas that producers are willing and able to sell at every price.

Khaled is a preschool teacher working at a public school, but he is considering quitting his job to start a daycare facility of his own. Indicate which of the four types of interdependency is most relevant to each factor in Khaled's decision. Use the market for daycare facilities as Khaled's market of interest. a. Khaled knows there are few daycare facilities in the area, but many families looking for daycare. This scenario is an example of dependencies a. between people or businesses in the same market b. through time c. between markets d. between each of your individual choices

a. between people or businesses in the same market

If a market is not in equilibrium, a. Supply changes to bring demand in balance b. demand changes to bring supply into balance c. Price changes to bring supply and demand into balance d. Quantity changes to bring supply and demand into balance

c. Price changes to bring supply and demand into balance

c. Lilia is deciding whether to major in economics or philosophy. The four core principles of economics a. do not apply because both programs cost the same and take the same amount of time to complete. b. apply because economics majors earn higher salaries. c. apply because Lilia should choose the major that provides the greatest economic surplus. d. do not apply because Lilia may change her major later.

c. apply because Lilia should choose the major that provides the greatest economic surplus.

c. If Khaled opens his own facility, he will be responsible for taxes, insurance, licensing, and facility upkeep, among other things. However, as a teacher Khaled will only need to keep up his teaching license. In addition, Khaled will not be able to take a long vacation in the summer if he runs a daycare center. This scenario is an example of dependencies. a. between people in the same market b. between markets c. between each of your own individual choices d. through time

c. between each of your own individual choices

According to Congestion and Network, The usefulness of some products — and hence your demand for them — is also shaped by the __ __ __

choices for others

Even if the choice has no direct financial cost, there is always a __ because every choice has an __ __associated with it

cost, opportunity cost

"Reading this textbook will require time and effort, but doing so will help you improve your grade in this course." This statement is related to the __ principle.

cost-benefit

What to do when you weigh the marginal benefits against the marginal costs?

cost-benefit principle applied to a marginal decision

Recall the granola bar you bought for yourself in scenario 1: - you gained something worth $3 to you (the granola bar) in exchange for something only worth $2 (your money) - This exchange generated an extra $1 worth of benefits for you! - This $1 is your

economic surplus

Scenario: Lets say you're hungry and are considering buying a granola bar from a vending machine after class. The granola bar costs $2. The benefit of the granola bar depends on how delicious it is to you. Let's say you are willing to pay up to $3 for the granola bar - Costs: $2 - Benefits: $3 - Decision: buy the granola bar Using the cost-benefit principle, we see the benefits __ the costs, which is why you do/do not buy the granola bar

exceed, buy

Use the marginal principle to break "__ __" decisions down into a series of __, or __ __.

how many, smaller, marginal decisions

In market demand curve: The market demand gives business owners a sense of

how much business is up for grabs

b. Niko, a local UPS manager, is trying to decide whether she should pay for additional trucks and drivers. If Niko decides to pay for additional trucks and drivers because she expects the coming season to be extremely busy, she is applying the ____ principle cost-benefit or interdependence

interdependence

All your individual choices are __ because you only have a limited amount of income to spend.

interdependent

Your choices as a supplier are also __ across different outputs as there are many different lines of business in which you could engage

interdependent

Sunk costs are __ to the current decision at hand because these costs are associated with every __moving forward

irrelevant, alternative

Cost-Benefit Principle

is an accounting concept that states benefits from an accounting system should always outweigh the costs associated with it.

What are the extra costs of hiring one more worker? — example of

marginal cost

Because this input costs more, it is now more costly for you to produce iPhones. Specifically, your

marginal cost of production rose

Fixed costs are irrelevant to your

marginal cost!

Eventually, as you try to expand production, there will be bottlenecks that cause

marginal costs to increase.

Individual demand curves are the building blocks of

market demand

Consider the change in market conditions in each of the given scenarios. Use the graphs to illustrate whether the changing market conditions will result in a change in supply or quantity supplied. If the change in market conditions results in a change in supply, shift the supply curve appropriately, but leave the price line unchanged. If the change in market conditions results in a change in quantity supplied, adjust the price line appropriately, but leave the supply curve unchanged. b. Speculators in world steel markets push the price of steel up, leading domestic steel companies to expand production. What happens to the supply of steel?

move along the curve to the right

When the price rises from $2 to $4, the quantity supplied changes from 1500 to 2500 units. This is a

movement along the existing supply curve

You are more likely to use a dating app if a lot of other people are also using it. This is an example of the __ effect. Network or Congestion

network

For most consumers, dental services are a inferior or normal good.

normal

For most consumers, the newest iPhone is a inferior or normal good?

normal

The effect of changing income depends on whether the good is __ or __

normal, inferior

Inferior goods are __ __; they are simply goods you buy __ of when your income is __

not bad, less, higher

Your demand curve and your marginal benefit curve are

one and the same

the marginal benefit and demand curves are

one and the same

Thus, the marginal cost and supply curves are

one and the same.

The supply curve is just a set of __. It illustrates the__ business plans to __ at __ __, holding other factors constant (ceteris paribus).

selling plans, quantity, sell at various prices

But when other factors change, you need to think about a __ (recall __). This is a change in __

shift in the supply curve, five factors, supply itself

This causes the supply curve to

shift to the right.

a. The price of jet fuel falls. What happens to price of fuel?

shifts to right

b. Innovation of new software allows Delta to more efficiently allocate its aircraft. What happens to price of fuel?

shifts to right

c. Delta signs a new labor contract that increases the wages Delta pays to its employees. What happens to price of fuel?

shifts to the right

Whatever the reason, marginal costs start to rise, and

so the supply curve slopes upward.

As the price falls lower and lower... what happens?

your quantity demanded gets higher and higher

If price = marginal cost, then

your supply curve is also your marginal cost curve!

Consider the market for candy. Which of the following statements describes a change in the quantity demanded, and which describes a change in demand? 1. Consumers are buying less candy because cookies are on sale. 2. Consumers are buying more candy because candy is on sale. 3. Consumers are buying more candy because it is Halloween. 4. Consumers are buying less candy because the price of candy rose. Answer

2 and 4 describe a change in quantity demanded. • 1 and 3 describe a change in demand

d. How much total surplus, if any, is gained from this exchange? (You can look at the previous question and do it on pen and paper)

27,000

You take a job driving for Lyft. It's a slow night and you are trying to decide whether to continue working or go home. You should - Continue working until the marginal benefit you receive from working additional time equals your marginal cost of working additional time. - Go home early. - Continue working as long as there are people looking for rides. - Set a daily revenue goal and stop working when you have achieved your goal.

- Continue working until the marginal benefit you receive from working additional time equals your marginal cost of working additional time.

Current suppliers do what? New suppliers do what?

- Current suppliers produce more units. - New suppliers enter the market

4 things that are associated with scarcity?

1. Limited Money 2. Limited Time 3. Limited Attention and willpower 4. Limited Production and Resources

So why start with perfect competition? (3 reasons)

1. Nearly all markets have some degree of competition 2. Simplifies analysis 3. Builds an analytical foundation

3 examples of Inferior Goods

1. Non-smartphone 2. Fast-food meals 3. Nonorganic fruits and vegetables

1. You are about to buy a calculator for $10, and the sales-person tells you that the model you want to buy is on sale for $5 at the store's other branch, which is a 20 minute drive away. You should make the trip to the other branch if: A. Your cost of making the trip is less than $5 B. Your cost of making the trip is more than $5

A. Your cost of making the trip is less than $5

Consider your current uses of tap water. Think about some of the ways that you use water that are beyond what is necessary to sustain life. a. If the price of tap water triples, what are some likely changes that you will make to your consumption of tap water? Choose all that apply A. turn water off while brushing your teeth B. decrease the length of your showers C. leave water running while brushing your teeth D. increase the length of your showers

A. turn water off while brushing your teeth B. decrease the length of your showers

Variable costs example

Buying more crude oil, buying more chemical additives, paying workers overtime

If the price of airfare rises, what response do you expect in the market for train travel? Shift the demand curve to show what happens in the market for train travel when the price of airfare rises. What happens to demand?

Demand increases

How do you quantify the enjoyment you get from a purchase? - Consider how much similar items cost. - Find out how much the item costs. - Determine how much you paid for the item last time you purchased it. - Determine the maximum you are willing to pay for the item.

Determine the maximum you are willing to pay for the item.

Example of decrease of demand

If Netflix does have good shows this month, then I will demand fewer movie tickets at each and every price

The Rational Rule for Sellers in Competitive Markets:

Sell one more unit if the price is greater than (or is equal to) the marginal cost

Production Possibilities Frontier (PPF):

Shows the different sets of output that are attainable with your scarce resources

Scenario: You obtained a new oven for your bakery that has three times more baking racks inside than your original oven. Illustrate how this new oven changes your supply of baked goods:

Supply curve will shift to the right

a. The batteries in Samsung smartphones begin to spontaneously combust. Market for Samsung Galaxy smartphones What happens to demand?

The demand shifts to the left

Marginal Benefit

The extra benefit from one extra unit (of goods purchased, hours studied, etc.)

Marginal benefit

The extra benefit of one extra unit (of goods purchased, hours studied, hours studied, etc.)

Framing effect

When a decision is affected by how a choice is described or framed

Congestion Effect

When a good becomes less valuable because other people use it. If more people buy such a product, your demand for it will decrease.

Movement along the demand curve

When a price change causes a movement from one point on a fixed demand curve to another point on the same demand curve

a. In the market for gasoline and sport utility vehicles (SUVs), the two goods are compliments or substitutes?

complements

c. In the market for smartphones and data plans, the two goods are complements or substitutes.

complements

The effect of changing the price of a related good depends on whether the two goods are __ or __.

compliments, substitutes

Should I work on homework OR hang out with friends? - Your answer to "or what" is the opportunity cost of the option under

consideration

- Akari's boss has offered to pay her for up to 5 hours of overtime today. Akari has already been working for 10 hours and is deciding whether to work more hours. When Akari weighs the money she will earn from working overtime against what she gives up to work the extra hours, she is applying the ____ principle. marginal or cost-benefit

cost-benefit

Every time you draw an individual's demand curve, you are drawing this person's buying plans given

current economic conditions.

Based on the the principle above? Because each unit yields a smaller marginal benefit, your willingness to pay for each additional unit ?

declines.

This means you are

less willing to supply at any given price (i.e., supply decreases)

Because the farmer choose to devote more resources to corn, there is __for wheat production. Thus, the farmer's supply of wheat __

less, decreases

The five factors that shift the market supply curve:

1. Input prices 2. Productivity and technology 3. Prices of related outputs 4. Expectations 5. The type and number of seller

Questions to go back:

- Question 9 on 3rd Assignment - Question 11 on 3rd Assignment - Question 12 on 3rd Assignment -

Changes in your preferences can shift your demand curve. Preferences can change for any number of reasons (list 4)

1. Life-altering event: Having a baby increases your demand for day care. 2. Marketing, influencers, and fashion cycles: There is a new pasta recipe trending on TikTok, resulting in a sudden increase in demand for feta cheese and tomatoes. 3. Social pressure: Rising environmental awareness increases demand for reusable and/or biodegradable straws (and decreases demand for single-use plastic straws). 4. Season/weather: During December, the demand for precut miniature pine trees increases as people decorate for Christmas

Examples of substitute goods (2)

1. One pasta brand versus another 2. Coca-Cola versus Pepsi

Most markets have some degree of imperfection. What are three examples of imperfections?

1. Only a few buyers and/or sellers 2. Selling a unique product 3. Product has loyal customers

3 examples as to why there was rising input costs and lead to rising marginal costs?

1. Pay time-and-a-half to get your staff to work overtime. 2. Need to offer higher wages to attract more workers. 3. Harder to find workers or other inputs

3 examples of normal good

1. Smartphone 2. Restaurant meals 3. Organic fruits and vegetable

4 steps in estimating market demand to estimate market supply

1. Survey suppliers (and potential suppliers). 2. For each price, add up the total quantity supplied by all sellers. 3. Scale up! 4. Plot the total quantity supplied at each price.

The Four-Step Process to Estimate Market Demand:

1. Survey: Ask each person the quantity they will buy at each price. 2. For each price, add up total quantity demanded by all customers. 3. Scale up the quantities to represent the whole market. 4. Plot the total quantity demanded at each price

Characteristics of the Market Demand Curve (5)

1. The market demand curve is downward-sloping 2. Law of demand: The total quantity demanded is higher when the price is lower 3. Prices change the quantity demanded for both old and new customers: 4. Lower prices mean current customers buy more units. 5. Lower prices bring new customers into the market.

If other factors change regarding the demand curve what two things will happen?

1. then people's buying plans change 2. then the demand curve changes

Diminishing marginal benefit:

Each additional item yields a smaller marginal benefit than the previous item.

Marginal Cost

The extra cost from one extra unit

Marginal cost

The extra cost of one unit

Ilsia is driving home from work. She needs to buy gas and notices an Exxon-Mobil station on one side of the street and a Shell station on the other side of the street. Although run by different companies, the two stations sell gasoline at the same price. 1. The most likely reason that the price is the same is that a. consumers view gasoline from different gas stations as perfect substitutes. b. drivers need gas and are willing to pay whatever price a gas station charges. c. gas stations always make a profit, so they can charge any price they want. d. government regulation requires both gas stations to charge the same price.

a. consumers view gasoline from different gas stations as perfect substitutes.

The Core Principles of Economics — End of Chapter Problem During the economic downturn of 2008-2009, the unemployment rate increased to nearly 10%. At the same time, the price of higher education tuition and the number of enrollees increased. a. Which statement best explains why more people enrolled in higher education institutions during this time period even as the price of tuition increased? More people enrolled because: a. if the next best option was unemployment, many individuals may have preferred to enroll in higher education and gain new skills in hopes of increasing their future employment prospects. b. if the next best option was unemployment, many individuals may have preferred to enroll in higher education and live off of student loans while waiting for the job market to improve. c. of the bandwagon effect. When something becomes popular or trendy, ever more people are willing to pay high prices for it. d. of the social pressure people feel to go to college. Universities exploited this and increased the price of tuition without losing many students.

a. if the next best option was unemployment, many individuals may have preferred to enroll in higher education and gain new skills in hopes of increasing their future employment prospects.

Ilsia is driving home from work. She needs to buy gas and notices an Exxon-Mobil station on one side of the street and a Shell station on the other side of the street. Although run by different companies, the two stations sell gasoline at the same price. 2. If one station increases its price, a. it will be fined by the government. b. it will sell more gasoline. c. it will lose customers to the cheaper station across the street. d. it will make a higher profit.

c. it will lose customers to the cheaper station across the street.

Your demand for a good will __ if the price of a complementary good rises.

decrease

Your decision on how much to spend on movies will impact how often you can eat out because you have

limited income

Because you only have one oven (i.e., you have __ __ __), you may not be able to prepare the main dish, and all the side dishes for dinner tonight.

limited production capacity,

It is a beautiful afternoon, and Jose is considering taking a leisurely two-hour stroll through the park. There are several other activities Jose is considering doing instead. The value Jose receives from each of the activities is provided in the table. Alternative Activities Value Streaming a movie: $5 Taking a nap: $8 Chatting with his best friend: $13 Reading a new book: $15 What is Jose's cost of taking the stroll through the park?

$15

You are launching a new consulting business and you need to decide how many employees to hire. Applying the marginal principle, what question should you consider?'] - How many people have applied for the position? - What level of education should I require? - Should I hire one more employee? - How many employees can I afford?

- Should I hire one more employee?

Which question uses the Opportunity Cost Principle to help make the best decision? - Should I meet my friends for dinner tonight? - Should I start my own business after graduation? - Should I look for a new job or should I go back to school? - Should I save more money for retirement?

- Should I look for a new job or should I go back to school?

Your expectations of the future - have no impact on your investment choices. - have a large impact on your investment choices. - are always accurate. - are rarely accurate.

- have a large impact on your investment choices.

__ (The Marginal Principle) __ (The Cost-Benefit Principle) __(The Opportunity Cost Principle) __(The Opportunity Cost Principle)

-One more? - Does the benefit beat the cost? - Or what? - What else?

Expectations about future prices or future availability can influence your current demand — your __ are linked through __

choices, time

Shift in the supply curve:

A movement of the supply curve itself

Sellers often try to __ your cost-benefit analysis through the use of __ __ __ or __.

cloud, sly product framing, description

The $10 spent on the sign represents a __ cost. a. labor b. necessity c. lost d. sunk

d. sunk

Parallels Between Demand and Supply Curves are shifted by Demand - A change in one of the __ factors (but not price) Supply - A change in one of the __ factors (but not price)

six five

Diminishing marginal product can occur in the short run when

some of your inputs are fixed.

If sellers exit the market, the total quantity supplied at each price __

decreases

In the podcast, the authors use the interdependence principle to illustrate how an increase in interest rates can lead to - an app to track changes in investment. - Google competing for workers. - more parents returning to the labor market. - an increase in consumption of coffee.

- more parents returning to the labor market.

Making good decisions is all about maximizing your

economic surplus

3 examples as to why there was a diminishing marginal product?

1. The new location is not as good 2. The new workers are less experienced and take longer to get things done. 3. Managing a larger workforce or multiple restaurants creates coordination problems

If the composition of the market changes because of a change in demographic composition, then the market demand will also change. List the 3 ways this takes place?

1. Types of Buyers: As baby boomers continue to age, this will cause the demand for health care services to increase 2. Number of Buyers: An increase in the population over time can increase the demand for goods and services, shifting the demand curve to the right. 3. International trade can also increase the number of buyers. For example, the opening of the Chinese economy means there are now an additional 1 billion consumers (a big shift in demand!)

Individual demand curve:

A graph that plots the quantity of an item that an individual plans to purchase at each price.

Decrease in demand:

A shift of the demand curve to the left.

Increase in demand

A shift of the demand curve to the right

Attending School - Tuition + books and cost $60,000 - You quit your job - Apartment and food cost $24,000 - 10 hours per day studying Working Full Time - You do not pay tuition + schoolbook costs - You earn $70,000 from your job - Apartment and food cost $24,000 - 10 hours per day working What are the Some out-of-pocket cost?

The $60,000 tuition is an out-of-pocket financial cost, and also an opportunity cost. She wouldn't have had this expense if she continued working full time.

Attending School - Tuition + books and cost $60,000 - You quit your job - Apartment and food cost $24,000 - 10 hours per day studying Working Full Time - You do not pay tuition + schoolbook costs - You earn $70,000 from your job - Apartment and food cost $24,000 - 10 hours per day working What are the Non-out-of-pocket financial costs?

The $70,000 salary you forgo by not working is not something you pay directly, but it is money that you give up, and is thus an opportunity cost

Diminishing Marginal Benefit Example:

The first slice of pizza is delicious! The second slice is still good. With the third slice you are full. The fourth slice would make you uncomfortably full.

Marginal product:

The increase in output that arises from an additional unit of an input, like labor.

b. Niko, a local UPS manager, is trying to decide whether she should pay for additional trucks and drivers. When Niko compares the cost of a new truck and driver to the benefit of increasing the package center's daily deliveries, she is applying the ____ principle opportunity cost or cost-benefit

cost-benefit

D. Khaled is up for a raise in the next 6 months at his teaching job. a. between people in the same market b. between markets c. between each of your own individual choices d. through time

d. through time

Christine is the general manager of a local automated car wash. The market she operates in is perfectly competitive. All of her competitors in the area charge $7 per car wash, which is also her marginal cost per wash. a. If Christine sets her price at $8, her profits will ____ increase, decrease, or remain the same

decrease

Your current supply will __ (supply shifts to the __), and your supply next year will __(supply shifts to the __)

decrease, left, increase, right

What are the extra benefits of hiring one more worker? — example of

marginal benefit

Your demand curve is also your

marginal benefit curve!

Stop when the

marginal benefit equals the marginal cost

When thinking about marginal costs, apply the ____ and what two steps are involved?

opportunity cost, 1. Sell this gallon of gas, or what, 2. What else could these resources be used for?

The opportunity cost of working on homework is not all the other options. Rather, the __ __ is your next __ __ (hang out with friends)

opportunity cost, best alternative

At each price, the total quantity of gas supplied is the

sum of the quantity that each business will supply at that price

When applying the Opportunity Cost Principle, you consider - marginal benefit versus marginal cost. - how other peoples' choices impact your best choice. - whether to purchase one more of an item. - the trade-offs of your decisions

- the trade-offs of your decisions

Before you make a decision you should do what two things?

1. Evaluate the full set of costs and benefits associated with that choice. 2. Pursue that choice only if the benefits are at least as great as the costs

3 examples of the choices made by other economic actors (people, businesses, governments, etc.) shape the choices available to you.

1. If Microsoft hires the most talented software engineers in Seattle, then there will be fewer talented people available for other Seattle-based tech companies to hire. 2. If your friends all have chosen to buy iPhones, you may also want to buy an iPhone to maximize OS compatibility across phones. 3. If your classmate gets hired for an internship, then your chances of getting hired at that same company have decreased.

Shift Versus Movement Along Demand Curve (2)

1. If the only thing changing is the price of the good itself, then you are thinking about a movement along the demand curve. This is a change in the quantity demanded 2. But when other factors change, you need to think about a shift in the demand curve (recall the six factors). This is a change in demand itself

The six factors that shift the market demand curve

1. Income 2. Preferences 3. Prices of related goods 4. Expectations 5. Congestion and network effects 6. The type and number of buyers

2 examples of dependence through time

1. Should I buy gas today, or next week? My decision depends on whether I think gas prices will fall or not next week. 2. Should I buy a hybrid car now, or wait a few years for the technology to get even better?

Gilberto is deciding whether to vote in the next election. The four core principles of economics A. apply to this decision because Gilberto should consider the costs and benefits associated with voting. B. do not apply to this decision because voting behavior is studied in political science. C. apply to this decision because Gilberto's vote is a marginal vote that could determine the outcome of the election. D. do not apply to this decision because there is no cost involved in voting.

A. apply to this decision because Gilberto should consider the costs and benefits associated with voting.

When the price of an item goes down, people buy more of it because at a lower price. A. some new people may be willing to enter the market. B. the item is more valuable. C. there is no opportunity cost. D. the marginal cost is more likely to exceed the marginal benefit.

A. some new people may be willing to enter the market.

In 2016, the top-selling pharmaceutical drug in the world was AbbVie's Humira, which is used for the treatment of several common, chronic conditions. The majority of its profits are derived from treatment of the most common diseases, but AbbVie also develops drugs for rare conditions. Why might AbbVie develop drugs for rare diseases instead of investing all of its resources toward drugs for common diseases? It is possible that A. the interdependence principle may be guiding AbbVie to develop and produce drugs for rare conditions. Common chronic and rare conditions are often experienced by the same people, so AbbVie can easily produce drugs for both. B. the marginal principle may be guiding AbbVie in determining if it is worth producing drugs for rare diseases. Since it is developing and producing treatments for rare diseases, the marginal benefits must exceed the costs. C. the opportunity‑cost principle may encourage AbbVie to produce drugs for rare conditions, because the full benefits outweigh the costs. The company must be maximizing its total economic surplus. D. framing effects may be enticing AbbVie to develop and produce drugs for rare conditions. Since these drugs are more

B) the marginal principle may be guiding AbbVie in determining if it is worth producing drugs for rare diseases. Since it is developing and producing treatments for rare diseases, the marginal benefits must exceed the costs.

Although most people do not manage a business, nearly everyone acts as a seller in some context of their daily lives. Classify each scenario based on whether the individual acts as a seller or not a seller. - Dodger starts a dog walking business. - Angie sells her used guitar on Craigslist. - Brendon asks his friends to help him move. - Melanie spends in her application to Arizona State University. - John lists his house for sale. - Vanessa is hired as a pilot for American Airlines. - Jessica throws a birthday party for her sister.

Seller: - Dodger starts a dog walking business. - Angie sells her used guitar on Craigslist. - John lists his house for sale. - Vanessa is hired as a pilot for American Airlines. - Jessica throws a birthday party for her sister. Not a Seller: - Brendon asks his friends to help him move. - Melanie spends in her application to Arizona State University.

Curve refers to

We are graphing things (sometimes these curves are straight lines). Let's create our first individual business's supply curve!

You just took an Uber from home to campus for the first time and were willing to pay $13 for the trip. It was so much easier than driving yourself that you are willing to pay $21 for the same trip tomorrow. Determine if you have violated the law of demand based on your choices, and why or why not that is the case. a. do violate the law of demand because the law of demand states that quantity demanded decreases as price increases. b. do violate the law of demand because you have chosen to buy the same amount of the product at two different prices. c. do not violate the law of demand because your preference for the product changed after you experienced the good. d. do not violate the law of demand because the law of demand states that quantity demanded increases as price increases.

c. do not violate the law of demand because your preference for the product changed after you experienced the good.

Consider the following statement: "Economists always put things into monetary terms; as a result, economics can most appropriately be called the study of money." Is this statement true or false? a. False, even though economists use monetary terms often, economics is better described as a governmental approach to improving market outcomes. b. True, financial markets are the primary focus of economics. c. False, economists use monetary terms because they can be quantified and compared, but economics is better described as an approach to decision making. d. False, even though economists use money as a form of measurement, economics is better described as the study of financial markets.

c. False, economists use monetary terms because they can be quantified and compared, but economics is better described as an approach to decision making.

The current administration imposes an unannounced tariff on steel imports which causes the price of new cars to increase overnight. Does the curve shift or changes on the line

changes on the line

To assess how consumers will react to a change in the price of the good, simply

compare different points on the same demand curve:

When Sony released the PlayStation 4, it was reported that Sony was taking a loss of $60 on every PS4. However, Sony expected to make this up with sales of PS+ subscriptions and increased royalties from video games. Use the interdependence principle to help explain this strategy. The PS+ subscriptions allow PS4 owners to play their games online, receive new games monthly to download at no charge, and receive additional special discounts on other items. Therefore, the PS4 and PS+ subscriptions are substitutes or complements?

complements

Edith is the owner and manager of a small coffee shop that employs three workers who use the shop's one coffee machine to make and serve coffee to paying customers. Business has begun to pick up; lines are getting longer every day in her shop. On a busy morning, she sees her baristas scrambling to take orders, get cups, fill coffee from the coffee machine, add cream and sugar, and serve customers in a timely manner. She figures if she hires three more baristas she'll be able to sell twice as much coffee. 1. Do you think she's likely to be right? Why or why not? a. No, the current workers just need better training to work more efficiently. b. Yes, more workers will increase the supply and make more coffee available for sale. c. Yes, hiring more workers will mean more customers can be served. d. No, more workers will just create more chaos behind the counter as the additional workers still have to wait to fill from the coffee machine.

d. No, more workers will just create more chaos behind the counter as the additional workers still have to wait to fill from the coffee machine.

Christine is the general manager of a local automated car wash. The market she operates in is perfectly competitive. All of her competitors in the area charge $7 per car wash, which is also her marginal cost per wash. b. If Christine sets her price to $5, her profits will ____ increase, decrease, or remain the same

decrease

Diminishing marginal product can occur in the long run because (kitchen anology)

despite being able to increase all inputs (i.e., expand the kitchen or open another restaurant)

Parallels Between Demand and Supply Curve Slopes Demand - Down (__) Supply - Up (__)

diminishing marginal benefits increasing marginal costs

b. In general, the consumption of tap water __ obey the law of demand.

does

Scenario: Suppose your friend is also hungry but doesn't have any money with them. Do you buy them a granola bar from the vending machine too? Your friend's happiness makes you happy and should be counted among the benefits. If you get a lot of joy from doing nice things for your friends, then cost-benefit analysis does or does not tell you to/to not purchase the granola bar for your friend

does, tell you

The rational rule guides sellers toward decisions that

earn the largest possible profit.

Your demand for a good will __ if the price of a substitute good rises, and it will __ if the price of a substitute good falls

increase, fall

f something important changed, like the wage of oil refinery workers fell, then BP's selling plans would change, which means its

individual supply curve would change

Any allocation of time such that you are below your PPF (line) is an __ use of your resources.

inefficient

For most consumers, a 10-year-old used car is a inferior or normal good.

inferior

a. "Reading this textbook will help establish a solid foundation for understanding concepts you will learn in more advanced economics courses." This statement is related to the __ principle

interdependence

b. Niko, a local UPS manager, is trying to decide whether she should pay for additional trucks and drivers. If Niko decides that paying for a new software upgrade is a better alternative than paying for additional trucks and drivers, she is applying the ____ principle marginal or opportunity cost

opportunity cost

The Opportunity Cost Principle: Understanding opportunity cost as the next best alternative, always consider the __ __ rather than just the __

opportunity cost, out of pocket financial costs

During the 1990s, Dell Computer Company adopted a lean production process, a manufacturing process that reduces inefficiencies without reducing production. As a result, Dell became one of the largest PC manufacturers in the world. Consider what impact the adoption of lean production techniques likely had on Dell's supply curve for PCs. Show the impact in the graph below by shifting the supply curve or moving the point along the curve.

shift supply curve to the right