Thinking Like an Economist

It costs Sam $150 to grow 300 tomatoes in his garden, then his average cost of growing a tomato is

50 cents

Suppose you buy a new pair of cleats and a new pair of shin guards at your local sporting goods store. You have a 10% off coupon for the cleats and a 50% off coupon for the shin guards. If soccer cleats are $70 and shin guards are $10, and the store will only accept one coupon per customer, then what should you do?

Use the $10 off coupon for the cleats because it's a bigger dollar saving. What matters is the dollar amount you save. Thus, it's better to use the 10 percent off coupon for the cleats.

What is the study of individual choice under conditions of scarcity and its implications for the behavior of prices and quantities in individual markets

microeconomics

The economic surplus of an action is

the benefit of taking an action minus its cost

If Sam gets $450 worth of benefit from growing 300 tomatoes in his garden, then his average benefit of growing a tomato is

$1.50

You are considering whether to take a few days off work to visit your best friend who lives in New York. You estimate that airfare plus other travel expenses will cost $575. In addition, you will have to use two vacation days, which you value at $100 each. Assuming there are not other costs associated with your trip, what is the opportunity cost of visiting your friend?

$775

Anita knits scarves that she sells on Etsy.com. When she knits 12 scarves a week her total cost is $144, and when she knits 13 scarves a week, her total cost is $169. Thus, her marginal cost of knitting the 13th scarf is...

25

Suppose you need to buy a new cell phone charger. You can buy one at a nearby store for $10, or you can buy one online for $8.50, but it'll take 2 days to arrive. If the cost to you of waiting two days for get the charger is $1, then your economic surplus from buying the charger online instead of at the store is...

50 cents The benefit of buying the charger is that it's cheaper, and the cost is that you'll have to wait 2 days. Economic surplus is the benefit of buying the charger online minus the cost, or $1.50 - $1 = 50 cents

What principle states that an action should be taken if and only if its benefits exceed its costs?

Cost-Benefit

Learning more about economic models can...

help us make better decisions even if most people don't consciously use economic models to make decisions

What is the study of the performance of national economies and the policies that governments use to try to improve that performance

macroeconomics

A ____ economic principle is one that says how people should behave

normative

People's behavior is ____ consistent with the Cost-Benefit Principle.

often

When the cost of action goes up

people generally will be less likely to take that action

You are considering whether to knit a sweater for your mom's birthday. You estimate that the cost of the yarn and other materials will be $20. In addition, you estimate that it will take you about 30 hours to knit the sweater. Given that you value your time at $5 per hour, what is the opportunity cost to you of knitting the sweater?

$170

For Buzz, the benefit of drinking an additional cup of coffee is $3. If a cup of coffee costs $1.50, and if Buzz has to use $1 worth of his time to go buy coffee, should Buzz drink another cup of coffee?

Yes, the benefit to Buzz drinking another cup of coffee is greater than the cost ($3>$2.50)

You're trying to decide whether to go for a run. If you don't go for a run, you'll either watch TV or do your homework. Your opportunity cost of going on a run is...

either the value you place on watching TV or the value you place on doing homework, whichever is larger the opportunity cost of an action is the value you place on the next best alternative

The marginal cost of carrying out an activity is the

increase in total cost that results from carrying out one additional unit of the activity

The average benefit of carrying out an activity is

the total benefit of undertaking n units of an activity divided by n

Should people consider implicit costs when applying the Cost-Benefit Principle?

yes

If Sarah gets $600 worth of benefit making 200 Christmas cookies, then her average benefit from making a Christmas cookie is

$3

Suppose you pay $75 to buy a ticket to see one of your favorite bands next month. When the day of the concert rolls around, should the cost of the ticket figure into your decision about whether to go to the concert (assume you have no way to sell your ticket to anyone else)?

No, on the date of the concert, the $75 you paid for the ticket is a sunk cost (regardless of whether you go to the concert, the $75 is gone). So the cost of the ticket should not enter into your decision about whether to go

Suppose you're trying to decide what to cook for dinner. Both the chicken and the salmon you have in your fridge are about to go to bad, and whichever one you don't eat tonight, you'll have to throw away. In deciding which one to cook, should it matter to you that the salmon was slightly more expensive than the chicken?

No, the amount you spent on the food is a sunk cost and shouldn't factor into your decision. You should just cook whichever one sounds better to you!

Kimberly owns a small soap-making business. When she makes 49 bars of soap a day, her total cost is $196, and when she makes 50 bars of soap a day her total cost is $225. Thus, her marginal cost of making the 50th bar of soap is...

$29

Suppose you've decided to go out to eat with some friends. If you take the time to go online, you know you can download a $5 off coupon for the restaurant. Should your decision about whether to download the coupon depend upon the amount you expect to pay for your meal?

No, the benefit of the coupon is $5, and the cost is the value of the time it would take you to download the coupon. Since neither of these depends upon the price of the meal, the price of the meal should not factor into your decision

A ____ economic principle is one that predicts how people will behave

positive

the value of what must be forgone in order to undertake an activity is the ____ cost of that activity

opprotunity

A ______ person is someone with well-defined goals who tries to fulfill those goals as best he or she can.

rational

A ____ cost is a cost that is beyond recovery at the moment a decision is made

sunk

You are considering whether to go to lunch with a friend. Lunch will take about an hour and will cost $9. Assuming there are no costs associated with going to lunch, the opportunity cost of going to lunch is...

$9 plus the value of the hour you spend at lunch. Both explicit and implicit costs (like the value of your time) should be considered when evaluating opportunity cost

What is the study of how people make choices under conditions of scarcity and the implications of those choices for society?

Economics

Suppose that each police officer hired by the City of Gotham generates an average benefit to the community of $500 per week, and the average salary of police officers is $600 per week. Should the City of Gotham hire more or fewer police officers?

It's impossible to say. Whether the City of Gotham should hire more of fewer police officers depends on the marginal benefit and marginal cost of an additional police officer, but the question only gives information on average benefit and average cost.