Economics 2314 Final Bruce McClung

Corey's opportunity cost of producing an extra pizza is delivering _____ pizzas.

1/2 because 6/12 = 1/2

Pat's opportunity cost of delivering an extra pizza is producing ______ pizzas.

2/3 because 10/15 = 2/3

Between USA and Nepal, Nepal invests less in new factories and equipments. This will likely cause

USA's production possibilities curve to shift outward faster than Nepal.

The cost-benefit principle indicates that an action should be taken

if the extra benefit is greater than or equal to the extra costs.

What is your opportunity cost, if you go to work on Saturday?

$35

You paid $35 for a ticket (which is non-refundable) to see JAM, a local rock band, in concert on Saturday. (Assume that you would not have been willing to pay any more than $35 for this concert.) Your boss called and she is looking for someone to cover a shift on Saturday at the same time as your concert. You will have to work 4 hours and she will pay you time and a half, which is $9/hr. What is the opportunity cost of going to the concert?

$36

Production Possibilities Curve: Point along the Curve.

-Available and Efficient.

Production Possibilities Curve: Point inside the Curve.

-Available and Inefficient.

Monopoly: If a firm is making a loss, what kind of loss is it?

-Economic loss.

What will firms do when Price (P) = MC (Marginal Cost), or if Price (P) is above that?

-Enter the market.

If both Supply & Demand increase, what happens to the Equilibrium Quantity?

-Equilibrium Quantity will increase.

Monopoly: Where Marginal Revenue (MR) = Marginal Cost (MC)?

-Firms will exit the market.

What happens in a Monopoly if a firm is making an Economic Profit?

-It will stay in business.

Production Possibilites Curve: Point outside the Curve.

-Point is Unavailable.

What happens in the Long Run of a Perfectly Competitive Firm?

-Profits? Enter. -Losses? Exit.

What is the fundamental concept of Economics?

-Scarcity.

Capital Goods (K)

-Something used to make something else. -Ex. Machine.

Supply & Demand: What happens when the supply curve is shifted to the left?

-There is a decrease in supply.

Supply & Demand: What happens when the Price is below the Equilibrium Price?

-There is a shortage.

Supply & Demand: What happens when the Price is above the Equilibrium Price?

-There is a surplus.

Supply & Demand: What happens when the demand curve is shifted to the right?

-There is an increase in demand.

If both Supply & Demand increase, what happens to the Equilibrium Price?

-We don't know what will happen to the Equilibrium Price. -Price is uncertain.

Supply & Demand: What is the Equilibrium Price?

-Where the Supply and Demand Curve cross. -P*

Supply & Demand: What is the Equilibrium Quantity?

-Where the Supply and Demand Curve cross. -Q*

If a given production combination is efficient, then it must be

on the production possibilities curve.

The comparative advantage for pizza production belongs to _____ and the comparative advantage for pizza delivery belongs to _____.

Corey; Pat

Every time you go to the grocery store, you try to choose the shortest line. But all of the lines always seem to be the same length. Why?

Everyone else is trying to choose the shortest line, too.

Jenna decides to see a movie that costs $7 for the ticket and has an opportunity cost of $20. After the movie, she says to one of her friends that the movie was not worth it. Apparently,

Jenna overestimated the benefits of the movie.

If Leslie can produce two pairs of pants in an hour while Eva can make one pair an hour, then it must be the case that

Leslie has an absolute advantage

Refer to the figure above(PPC). Suppose that it is government policy to use resources efficiently. What should the government do?

Never produce at Point D. (point D is inside of the curve, which means it is unavailable & inefficient)

Should you go to the concert instead of working Saturday?

No, your benefit is less than your cost

Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. This is

an economic problem, because the one-hour time limit means Chris must make a choice.

Economic questions always deal with

choice in the face of limited resources.

Microeconomics is distinguished from macroeconomics in that microeconomics focuses on

choices made by individuals or groups in the context of individual markets.

The scarcity principle indicates that and the cost-benefit principle indicates .

choices must be made; how to make the choices

If a given production combination is known to be attainable, then it must be

either an inefficient or efficient point.

Tony notes that an electronics store is offering a flat $20 off all prices in the store. Tony reasons that if he wants to buy something with a price of $50 that it is a good offer, but if he wants to buy something with a price of $500 it is not a good offer. This is an example of

inconsistent reasoning; saving $20 is saving $20

In general, rational decision making requires one to choose the actions that yield the

largest economic surplus.

The slope of any production possibilities curve is ______ because ______.

negative; to produce more of one good means less production of the other

According to the principle of increasing opportunity cost, expanding production requires using resources in which order:

start with the resource with the lowest opportunity cost and proceed to the higher opportunity cost resources.

The production possibilities curve shows

the maximum production of one good for every possible production level of the other good.

The opportunity cost of an activity is the value of

the next-best alternative forgone.

Pizza's made per hour & Pizzas delivered per hour: Corey: 12 & 6 Pat: 10 & 15 Corey has an absolute advantage in?

the production of pizza.