Ch. 1 The Four Core Principles of Economics

Lee watches a beautiful sunset from the back porch of his house. The four core principles of economics

apply because Lee could have been doing something else

Brendon and Jessica are deciding whether to purchase a second vehicle. The four core principles of economics

apply because Brendon and Jessica will have to give up something else to purchase the second vehicle

sunk cost

a cost that has been incurred and cannot be reversed. exist in whatever choice you make, and hence it is not an opportunity cost. it is good to ignore these costs

marginal principle

decisions about quantities are best made incrementally. you should break "how many" questions into a series of smaller decisions. weighing marginal benefits and marginal costs

Amancio is going into his fourth year of school when he is offered a prestigious position at a software company. Instead of applying the opportunity cost principle to see if he should quit school and take the job, he decides to stay in school, because he has already spent so much time and money on furthering his education. Amancio's hasty decision has been negatively affected by:

sunk costs

marginal benefit

the extra benefit you get from one extra unit

You are considering starting a sandwich shop but are comparing that to the idea of staying at your current job instead. Which economic benefit are you taking into account?

the opportunity cost principle

opportunity cost

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

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?

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

Lilia is deciding whether to major in economics or philosophy. The four core principles of economics

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

Gilberto is deciding whether to vote in the next election The four core principles of economics

apply to this decision because Gilberto should consider the cost and benefits associated with voting

cost benefit principle

are the incentives that shape decisions. you should evaluate the full set of cost and benefits of any choice, and pursue only those whose benefits are at least as large as their costs

Natasha starts a small software company but finds it difficult to hire good software developers since she has a very large competitor half a mile away. This is BEST explained by which of these interdependencies?

dependencies between people, or businesses

Matthew has been diagnosed with cancer and doctors estimate that he has roughly 5 months to live. From an economic stand point, which BEST explains why Matthew might be more likely than a healthy person to take a risky experimental drug?

his opportunity cost is lower than that of healthy people

rational rule

if something is work doing, keep doing it until your marginal benefit equals your marginal costs.

someone else's shoes technique

imagine yourself in someone else's position in order to understand their objectives and constraints, and forecast the decisions they will make.

Jacob owns a phone repaid shop that is open 6 hours a day. He is considering the idea of having his shop remain open 12 hours a day, but he realizes that the success of this plan may be affected by the changing hours of his competitors. Jacob is taking into account the ____ principle`

interdependence

Your friend remarks that longer movies are a better deal than shorter movies because the ticket price is the same in both cases. Therefore, the longer the movie provides more benefit for the same about as a shorter movie. Which of the following is the best argument against your friend's claim that longer movies provide more benefit that shorter movies?

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

scarcity

resources are limited, therefore any resources you spend pursuing one activity leaves fewer resources to pursue others. you always face a trade-off

production possibility frontier

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

You are weighing the cost of a cup of coffee against the satisfaction you will obtain from the coffee. Which economic principle are you taking into account?

the cost-benefit principle

marginal cost

the extra cost from one extra unit

Why do you need to do more than just calculate whether a financial profit will be made when you are deciding whether to start a new business?

the financial profits need to be at least as large as the opportunity cost of the investment of your time and money

Argon is struggling to determine how many hours he should work. Which of these principles should he use first in order to break the issue down into the simpler question, "Should I work one more hour?"

the marginal principle

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?

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.

willingness to pay

the maximum amount a buyer would be willing to pay for something. to convert costs or benefits into their monetary equivalent

When applying to opportunity cost principle, why is it important to ask, "Or what?"

to determine your next best alternative

economic surplus

total benefits - total costs it measures how much a decision has improved your well-being

framing effect

when a decision is affected by how a choice is described

interdependence principle

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