econ 2 ch.2 TB

Bianca, a small oil producer is talking to her chief engineer, Pete, about repairs and upgrades to an oil well. Pete: "...additional upgrades on the well would cost $5,000 but would allow increased production and revenue of more than $10,000 per year." Bianca: "I already spent $20,000 on this well, it is a money pit; we should not spend anymore on it." Based on the information given, what is the sunk cost?

$20,000 spent on prior repairs

Danielle is planning a cruise to Mexico and has a budget for new clothes of $300. The average price for a pair of shoes is $50 while the average price for a suit is $100. Danielle already has 4 pairs of shoes purchased for her cruise, what is the opportunity cost of buying two more pairs of shoes?

1 dress

If Stephanie decides to buy 4 dresses, how many pairs of shoes can she afford?

2 pairs of shoes

Let's consider again our example of Stephanie who is planning a cruise to the Caribbeans and has a budget for new evening wear of $500. The average price for a pair of shoes is $50 while the average price for an evening dress is $100. She found 6 pairs of shoes and 2 dresses she likes. She decides that she does need one more dress. What is the opportunity cost of buying a 3rd dress?

2 pairs of shoes

Consider the Production Possibility Frontier for the country Z producing 2 groups of goods, cell phones and clothing. The opportunity cost of moving from the combination of cell phones and clothing B to D is

4 cell phones

The country of Mambia produces cars and TVs as laid out in the Production Possibility schedule below. What would be the opportunity cost of producing a fourth car (increasing production from 3 to 4 cars)? Cars (daily production in thousands) 0 1 2 3 4 5 TVs (daily production in thousands) 20 18 15 11 6 0

5 tvs

Stephanie is planning a cruise to the Caribbeans and has a budget for new evening wear of $500. She plans to purchase new shoes and dresses. The average price for a pair of shoes is $50 while the average price for an evening dress is $100. What is a combination of dresses and shoes that Stephanie could afford?

6 pairs of shoes and 2 dresses

A combination of clothing and cell phones that would meet the allocative efficiency would be:

any combination on the production possibilities frontier that brings the highest level of satisfaction to the people in the economy

Consider the example presented above about Biana, a small oil producer, trying to decide about investing more money into an oil well. If upgrades cost $5,000 but increase revenue will be more than $10,000 a year, what should Bianca do (assuming the $5,000 is available to her)?

bianca should send 5,000 on the well with the expectation that the additional revenue would outweigh the additional spending

Making an economically rational decision requires

considering the prospective benefits and costs to oneself

Consider the Production Possibility Frontier below for the country Z producing 2 groups of goods, cell phones and clothing. The opportunity cost of one additional cell phone is ________.

greater at A than at B

The slope of a budget constraint line is influenced by

how much one product costs compared to the other

Now if the economy is currently producing 18 pieces of clothing and 2 cell phones (combination B), then

it could be reaching allocative efficient if combination B best meets the needs of country Z

The following statement given at a political rally: 'Poverty should be eliminated given the size of our economy; and that's a fact." This is normative because

it is expressing someone's values and opinions

The additional benefit that one more unit of something will provide is known as

marginal benefit

To make an economically rational decision, marginal cost should be compared to

marginal benefit

The government should take measures to reduce inflation.

normative

The inflation should be kept at 0%

normative

A budget constraint model differs from production possibilities model in that, typically

only the production possibilities model demonstrates diminishing returns

The inflation has been above 5% per year for the last 5 years.

postive

the production possibilities model illustrates an inverse relationship between two goods or services because

production of different types will compete for limited resources

In order to satisfy as many wants as possible, it is necessary to achieve allocative efficiency,

since otherwise output may go to where it is less valued

Raj and Annie, owners of a trucking company, are discussing opening a new distribution center and are analyzing the estimated cost and potential benefits of the project. Raj and Annie are behaving rationally because

the decision is based on self interest

Consider a new Production Possibility Frontier for the country Z that produces 2 groups of goods, cell phones and clothing. If the economy is currently producing the 10 clothing and 4 cell phones (combination D),

the economy is not reaching productive efficient because it could produce more phones without having to give up clothing

Identify the normative statement(s) among the following statement(s).

the federal govt spends too much

Suppose that there are only two types of output in a country: nuclear missiles and consumer goods. All else being constant, as the nation produces more missiles,

the greater the opportunity cost will be satisfying consumer wants

The musician was known for multiple encore performances, but had limited stamina and a rational mind. Even she would eventually call it a night when, by her judgement

the marginal cost is greater than the marginal benefit of an additional encore

Scarcity is imposed on individual households in the form of income and

the prices of the goods that a person may purchase

Juan has a monthly budget of $100 to spend on entertainment. A concert ticket costs $20 while a movie ticket costs $10. This month Juan has attended one concert and 5 movies so far. If Juan decides to only go to movies for the rest of the month. How many movie tickets can he afford to purchase and stay within his budget?

three tickets

Peyton and Paul are brothers who own a manufacturing business and are considering opening a new distribution center. They estimate that the project would add $5 million in expenses and that their profit would increase by $1.5 million per year for the next 5 years (other things equal). Peyton and Paul decide

to go ahead with the project because the expected marginal benefit is greater than the estimated marginal cost of the project

Indi and Indrani are sisters who own a software development company. Demand has been increasing for their products and services and the sisters are contemplating whether to open up a satellite office in Austin. They estimate it would add $7 million in expenses and a profit of $12.5 million in total over the next 5 years (all other things equal). Indi and Indrani decide

to open a new office because the expected marginal benefit is greater than the estimated marginal cost