Chapter 1 Econ 201

Suppose you find $20. If you choose to use the $20 to go to the football game, your opportunity cost of going to the game is

$20 because you could have used that money on other things plus the value of your time spent at the game.

Marginal Change

An incremental adjustment to an existing plan

A goal for a society is to distribute resources more equally and fairly. How might you distribute resources if everyone were equally talented and worked equally hard? What if people had different talents and some people worked hard, while others did not?

Fairness might require that everyone get an equal share because they were equally talented and worked equally hard. Fairness might require that people not get an equal share because they were not equally talented and did not work equally hard.

True/False- Rational people act only when the marginal benefit of the action exceeds the marginal cost.

True

Your car needs to be repaired. You have already paid $500 to have the transmission fixed, but it still doesnt work properly. You can sell your car "as is" for $2000. If your car were fixed, you could sell it for $2500. Your car can be fixed with a guarantee for another $3000. Should you repair your car? why?

Yes, because the marginal benefit of fixing the car is $2500-$2000=$500, and the marginal cost is $300. The original repair payment is not relevant.

productivity can be increased by

improving the education of workers

An increase in the price of beef provides

information that tells the producers to produce more beef.

Scarcity

limited resources and unlimited wants

Trade-offs are required because wants are unlimited and resources are

scarce

Economics is the study of how

society manages its scarce resources

Because people respond to incentives, we would expect that if the average salary of accountants increases by 50 percent while the average salary of teachers increases by 20 percent,

students will switch their majors to accounting.

Rational

systematically and purposely doing the best you can to achieve your objectives

Efficiency

the property of society getting the most from its scarce recources

Opportunity Cost

whatever is given up to get something else