Econ 2010 Chapter 1

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 Average benefit is the total benefit of undertaking n units of an activity divided by n ($450+300)

Suppose you are considering whether to go to your 8am economics class. If you do not go to class you can either sleep an extra hour, which you value at $10, or you can go to the gym, which you value at $7. Your opportunity cost of going to class is:

$10 The opportunity cost of an action is the value you place on the next best alternative

The Cost-Benefit Principle is a 1._____ economic principle, while the Incentive Principle is a 2._____ economic principle

1. Normative 2. Positive

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 Marginal cost is the increase in total cost that results from carrying out one additional unit of an activity. In this case, when Anita knits the 13th scarf, her total increases from $144 to $169. So, her marginal cost is $25 ($169-$144)

The _____ benefit of an activity is the increase in total benefits that results from carrying out one additional unit of the activity.

Marginal

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

Microeconomics

The _____ Principle states that although we have boundless needs and wants, the resources available to us are limited, so having more of one good thing usually means having less of another.

Scarcity

Economic _____ is the benefit of taking an action minus its cost.

Surplus

Name a normative economic principle

The Cost-Benefit Principle

The total benefit of carrying out n units of an activity divided by n is the activity's _____ benefit

average

Economic models are useful in explaining and predicting behavior

even if people aren't consciously using those models to make decisions

The Incentive Principle asserts that a person:

is more likely to take an action if its benefits rises, and less likely to take an action if its cost rises (The Incentive Principle says that people generally respond to incentives.)

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

normative

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. According to the Cost-benefit Principle, you should buy the cell phone charger

online if the cost to you of waiting 2 days is less than $1.50 (the benefit of buying the charger online is $1.50. The cost is that you'll have to wait two days. If the cost is less than $1.50, then you should buy the charger online

The value of what must be foregone in order to undertake an activity is the _____ cost of that activity

opportunity

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

postive

In Economics, a _____ individual is someone with well-defined goals who tries to fulfill those goals as best he or she can

rational

A cost that is beyond recovery at the moment a decision is made is a(n)

sunk cost

The Cost-Benefit Principle states that an individual or society should only take an action it, and only IF:

the extra benefits from taking the action are at least as great as the extra costs.

A rational person is someone with

well-defined goals who tries to fulfill those goals as best as he or she can