Chapter 1 Economics Foundations and Models

Refer to Table 1. What is Haley's opportunity cost of making a necklace? Serena Haley Bracelets 8 9 Necklaces 16 12

3/4 of a bracelet

Refer to Table 1. What is Haley's opportunity cost of making a bracelet? Serena Haley Bracelets 8 9 Necklaces 16 12

1 1/3 necklaces

In analyzing markets, we generally assume:

1. People are rational 2. People respond to economic incentives 3. Optimal decisions are made at the margin

Refer to Table 1. What is Serena's opportunity cost of making a necklace? Serena Haley Bracelets 8 9 Necklaces 16 12

1/2 of a bracelet

The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each. What is the opportunity cost of buying a cappuccino?

2 1/2 Russian tea cakes

Refer to Table 1. What is Serena's opportunity cost of making a bracelet? Serena Haley Bracelets 8 9 Necklaces 16 12

2 necklaces

Bella can produce either a combination of 60 silk roses and 80 silk leaves or a combination of 70 silk roses and 55 silk leaves. If she now produces 60 silk roses and 80 silk leaves, what is the opportunity cost of producing an additional 10 silk roses? Serena Haley Bracelets 8 9 Necklaces 16 12

25 silk leaves

Market

A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.

Refer to Table 1. Which of the following statements is true? Serena Haley Bracelets 8 9 Necklaces 16 12

Haley has an absolute advantage in making bracelets and Serena in making necklaces.

Which of the following statements is true? * Individuals who have never been the best at doing anything perform all tasks at a higher opportunity cost than others. * Individuals who have never been the best at doing anything can still have a comparative advantage in producing some product. * Individuals who have never been the best at doing anything must have an absolute advantage in at least ones task. * Individuals who have never been the best at doing anything cannot have a comparative advantage in producing any product.

Individuals who have never been the best at doing anything can still have a comparative advantage in producing some product.

Which of the following statements about scarcity is true?

Scarcity refers to the situation in which unlimited wants exceed limited resources.

How are the fundamental economic decisions determined in North Korea?

The government decides because North Korea is a centrally planned economy.

opportunity cost

The highest-valued alternative given up in order to engage in some activity is known as the

Trade-off

The idea that, because of scarcity, producing more of one good or service means producing less of another good or service.

Productive efficiency

a situation in which a good or service is produced at the lowest possible cost

Allocative efficiency

a state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it.

The prime minister of the tiny island nation of Falcon has proposed that the Falcon Postal Service reduce mail delivery to its residents from 5 days a week to 3 days a week. Enacting this proposal would be optimal

as long as the marginal benefit of reducing mail delivery to 3 days a week is just equal to or greater than the marginal cost of reducing mail delivery to 3 days a week.

As women's wages have risen relative to men's wages, the opportunity cost to women of doing housework has ________ than has the opportunity cost to men.

increased more

In economics, the term ________ means "additional" or "extra."

marginal

Economists reason that the optimal decision is to continue any activity up to the point where the

marginal benefit equals the marginal cost.

The production possibilities frontier shows the ________ combinations of two products that can be produced in a particular time period with available resources.

maximum attainable

Suppose that some teachers have decided that economic and financial uncertainty have made the prospect of retiring more risky, and therefore carry a higher cost than not retiring. By using all available information as they act to achieve their goals, these teachers are exemplifying the economic idea that

people are rational.

Suppose the U.S. government encouraged new medical school graduates to take over existing practices from doctors wishing to retire by paying both the new and retiring doctors $100,000. These doctors would be exemplifying the economic idea that

people respond to economic incentives.

In economics, choices must be made because we live in a world of

scarcity.

By definition, economics is the study of

the choices people make to attain their goals, given their scarce resources.