Econ 1.2
If Stephanie decides to buy 4 dresses, how many pairs of shoes can she afford?
2 pairs of shoes
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 - Prior spending no longer has bearing on the current decision and represents the sunk cost
The slope of a budget constraint line is influenced by
How much one product costs compared to the other
Marginal benefit is
The additional benefit that one more unit of something will provide
Normative statements are based upon
Value judgments.
Productive efficiency
y means that, given the available inputs and technology, it's impossible to produce more of one good without decreasing the quantity of another good that's produced.
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 spend $5,000 ont he well with the expectation that the additional revenue would outweigh the additional spending - The decision should weight whether the $5,000 upgrade is beneficial by comparing its cost ($5000) and its potential benefit ($10,000) and not be based on sunk cost (Prior spending) alone. We assume that the $5,000 is available to Bianca.
Denasia is planning a cruise to the Bahamas and has a budget for new evening wear of $400. The average price for a pair of shoes is $50 while the average price for an evening dress is $100. If Denasia already has 3 dresses purchased for her cruise, what is the opportunity cost of buying one more dress?
2 Pairs of shoes
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
A rock star intentionally sets her ticket prices below what would be necessary to sell out her shows. How might this be justified by a manager whose goal is to maximize long-term profit
THe sacrificed is worth the boost it gives to her image as lines form of tickets.
Imagine that a high school junior received a bonus check from his boss on the last day of his summer job. He decides to save all of that bonus check to pay for his senior trip coming up next year instead of purchasing a much needed new automobile. From an economist's perspective, which of the following statements about this decision is likely to be true?
The decision is rational in the sense that it reflects the junior's preference for a senior trip over new automobiles.
The slope of a budget constraint line is influenced by
The relative prices of the two goods competing to satisfy wants
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
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
Two countries are trying to decide which product should have an increased production. Both Canada and Costa Rica produce coffee and corn, but it is easier for Canada to raise corn than grow coffee. Costa Rica easily grows coffee, but has a more difficult time growing corn. In comparison with Canada, Costa Rica has
A comparative advantage with coffee
Consider the graph of the production possibility frontier for country Z below. A combination of clothing and cell phones that would meet the productive efficiency would be:
E I thinks
Consider the graph of the production possibility frontier for country X. What is a combination of MP3 players and watches that would be inefficient production for country X?
F I think?
Consider the Production Possibility Frontier for country X producing 2 groups of goods, MP3 players and watches. The opportunity cost of one additional watch is You were correct. Multiple Choice QuestionEqual at B and CGreater at C than at B.Greater at B than at C
Greater at B than at C
Ayden is the sole proprietor of a shoe repair shop in Atlanta. His business has been increasing for five years and he is now considering opening a second repair shop downtown. Ayden is putting together a plan, estimating costs, projecting potential revenue of a second shop. Ayden is behaving rationally because
He is analyzing the costs and benefits of the decision, which will be based on his self interest
An Uber driver estimates that he will make $300 on Fridays if he works all evening. He decides to stay home because $300 will not be enough to pay his car loan. His reasoning is ________ because ________.
Incorrect; He should work and pay down his debt even if he cannot earn the entire car payment in one night.
Based on the graph of Maren's budget constraint for dresses and shoes, what accurately describes the slope of her budget constraint?
It is negative because of scarcity and the limited amount of money available to Maren
Which is a true statement about marginal benefit?
NOT the amount of benefit a person receives from a good or service remains constant maybe: it is the difference (or change) in cost of a different choice?
A budget constraint model differs from production possibilities model in that, typically
Only the production possibilities model demonstrates diminishing returns
The production possibilities model shows an inverse relationship between the amount of one thing and the amount of something else that can be produced because
Production of different types will compete for limited resources
When choosing a college major in a rational way, Misty should consider
The cost of the degree and the benefit each degree would bring
Because of ________ if a city government decides to spend money on beautifying its downtown and attracting tourism to its city when no money has been devoted to those efforts before, then gains in tourism may be significant.
The law of diminishing returns
The construction estimator told the storage unit owner that building another section of storage units will likely add 100 more storage space renters to the bottom line. The rational storage business owner considered the rental prices of an additional 100 units, but he would decide to add more units if and only if
The marginal benefit is greater than the marginal cost of additional units
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
Willa and Wesley are siblings who built a hair salon business from the ground up. They are now contemplating opening an additional salon location. The estimate to open an additional salon would mean adding $1 million in expenses and a revenue of $2 million in total over the next 5 years (all other things equal). Willa and Wesley decid
To take on the new salon because the expected marginal benefit ($2 million over 5 years) is greater than the estimated marginal cost ($1 million)
Julie's entertainment budget for the next six months is $150 per month. She enjoys watching the latest movies and loves the ballet. A movie ticket costs $15 while a ballet ticket costs $35. This month Julie already attended one ballet show and three movies. If Julie decides she would rather see ballet shows for the remainder of this month, how many ballet shows can she attend and stay within her budget?
Two ballet shows
budget constraint:
all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set
sunk costs:
costs that are made in the past and cannot be recovered
A positive statement is always
devoid of value judgements
Scarcity is imposed on individual households in the form of
limited income and the prices of the goods that a person may purchase
Allocative efficiency
means that the particular mix of goods a society produces represents the combination that society most desires. For example, often a society with a younger population has a preference for production of education, over production of health care.
opportunity cost:
measures cost by what is given up in exchange; opportunity cost measures the value of the forgone alternative