Econ test 1
According to the cost-benefit principle, framing effects should
Not affect a decision
When applying the rational rule for working overtime
Only stay if the cost of working that extra hour is less than the benefit you receive for the extra hour of work
A Calculation of marginal cost should include
Only variable costs
When a purchase is made & the price is less than or equal to your willingness to pay, you are following the
Rational rule
If Tesla cars become less expensive, what will happen in the market for other electric cars?
The demand for other electric cars will fall.
Lacey is willing to pay $600. What is her economic surplus if she spends $400?
200
The price of coffee at a local coffee shop is 2.50 Cheryl is willing to pay $8 for her first cup of coffee. The marginal benefit fall $2 per cup. How many should she purchase
3
An individual supply curve is
A graph with quantities of a product that a seller is willing to supply at different price points
If ramen noodles are an inferior good, then an increase in income will lead to
A leftward shift of the demand curve
What best describes the use of the marginal rule
Breaking down a choice into a series of smaller choices and comparing the additional costs and benefits of each action
Diminishing marginal benefit implies that
Buying an additional unit of an item yields a smaller benefit than the previous unit purchased
If rice is an inferior good, when incomes rise the equilibrium price and quantity will
Decrease
Is a measure of how much your decision has increased your wellbeing
Economic surplus
How is economic surplus generated by a decision calculated
It is the total benefits minus total costs arising from the decision.
The rational rule allows you to
Maximize your economic surplus
If a business becomes mores efficient their supply curve will
Shift to the right
Allow a business to manufacture alternative products using the same inputs
Substitutes in production
What is the process that a manager can follow to estimate the total market demand for the US
Survey some representative customers, find total quantity demanded, scale up quantities for entire market, & plot the market demand curve
What happens to the equilibrium price and equilibrium quantity when demand and supply increase simultaneously but the relative size of the shifts are not known
The equilibrium quantity rises, and the change in the equilibrium price is ambiguous.
Principle where your best choice depends on other choices made, developments, and expectations
The interdependence principle
When you choose the next best alternative you have to give up to get it
The opportunity cost principle
An individual supply curve is
The same as the individual marginal cost curve
The market supply is the
Total quantity produced by all sellers in the market at each price
The primary difference between a change in supply and a change in quantity supplied is that
a change in quantity supplied is a movement along the supply curve, while a change in supply is a shift in the supply curve.
For normal goods, an increase in income will result in
an increase in the equilibrium price and the equilibrium quantity.
The key to using the cost benefit principle is to think about aspects of a decision
both financial and non financial
Shifts in supply
cause price and quantity to move in opposite directions
Shifts in demand
cause price and quantity to move in the same direction
If ramen noodles are an inferior good for Kim, then, holding all other things constant, as Kim's income increases, her demand for ramen noodles will:
decrease
The difference between a centralized economy and a market economy is that
governments make production decisions in a centralized economy, and individuals make production decisions in a market economy.
The rational rule for sellers says that a seller should sell one more unit of an item if the price is
greater than or equal to the marginal cost.
Supply curves typically slope upward because
higher prices lead businesses to supply more output and more businesses to enter the market.
The interdependence principle
implies that buyers decisions are affected by many factors other than the price of an item.
A rational buyer will
keep buying a product until marginal benefit equals price.
The law of supply refers to
positive relationship between price and quantity supplied
The opportunity costs of attending college include
potential income that could be earned working.
According to the law of demand, what happens when prices go down?
quantity demanded increases
Opportunity cost arises from the fundamental economic problem of
scarcity
The marginal benefit of consuming an item is the
the additional benefit from buying one more unit of that item.
Economists convert costs and benefits into money equivalents by evaluating an individual's
willingness to pay
