Microeconomics ch 1-4

Sunk costs should _____ be considered as part of the opportunity costs of a decision

never

rational rule for sellers example:

American Airlines determines the marginal cost of an extra passenger to be $75 and sells a discount seat for $250.

In a voluntary economic transaction between a buyer and a seller, _____ can earn economic surplus from the transaction?

Both the buyer and the seller

Opportunity costs of attending college:

Forgone Salary, Sleep, Time to watch Netflix

What is quantity supplied?

It is the amount of an item that a seller is willing to sell at each price.

Consider your decision to attend class each day or skip it. Which of the four core principles of economics applies to the notion that by attending class you are not doing the next best activity you would prefer to do, such as napping or going to the gym?

Opportunity cost principle

An individual demand curve is a graph:

That plots the quantity of an item that someone plans to buy, at each price

A normal good is:

a good for which higher income causes an increase in demand

An inferior good is

a good whose demand decreases when income rises

For normal goods

a tax cut on consumer income will lead to a rise in their demand.

substitutes in production

allows a business to have alternative uses of its resources by manufacturing other products using the same inputs.

Quantity demanded is on the horizontal axis when you plot a demand curve and shows the:

amount of a good that a person is willing to buy at each price

The Cost-Benefit Principle states that _____ are the incentives that shape decisions

costs and benefits

According to the marginal principle, keep increasing quantity until the marginal benefit of an additional item is ___ the marginal cost of an additional item

equal to

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.

You are thinking of going out to dinner at a restaurant with your friends. The meal is expected to cost you $50, you typically leave a 20% tip, and a round-trip Uber ride will cost you $20. You value the restaurant meal at $20, and the time spent with your friends at $30. You should ____ to dinner with your friends because the benefit of doing so is _____ than the cost.

not go; less

Daisy is a milk farmer in a perfectly competitive market where there are many milk farmers. The market price of milk is $0.15 per gallon, which is also the marginal cost per gallon of milk. If Daisy charges $0.25 per gallon, she will

not sell any milk

when you calculate marginal costs, they should include

only variable costs

decisions should reflect the ___ costs, rather than just the ___ costs

opportunity; financial

the relationship between price expectations and demand is

positive; when future prices are expected to rise, current demand will rise

Dependencies between your own choices reflect the fact that:

you have limited resources.

A business manages to become more efficient. As a result of this improved efficiency, it will

shift supply curve right

If the price of jet fuel rises, the

supply of airline flights decreases.

if Tesla cars become less expensive, what will happen in the market for other electric cars?

the demand for other electric cars will fall

an individual supply curve is

the marginal cost curve

A large amount of harvested grain used to make flour grows mold due to flooding. How will this affect the supply of flour in the market?

the supply of flour will decrease in the market

A downward-sloping demand curve implies:

there is an inverse relationship between price and quantity demanded

Economic surplus generated by decision

total benefits minus total costs arising from decision

What is the process that a manager can follow to estimate the total market demand for the United States?

Survey some representative customers, find the total quantity demanded for those customers, scale up the quantities demanded to represent the entire market, and then plot the market demand curve.

Recent evidence suggests exercise promotes longevity and reverses aging. Based on this information, what might happen in the market for exercise-related goods and services?

The demand for exercise machines and/or gyms will increase

Gary Parker is willing to pay $700 for a new iPad. Apple (the producer of iPads) is selling a new iPad for $600. It costs Apple $400 to produce this iPad. How much economic surplus does Apple receive if Gary purchases this iPad?

$200

example of law of demand

Kathleen eats more steak when the price is low, and less when the price is high

fixed costs characteristics

They do not change with the level of production in the short run. They are present even when the firm is producing zero units. They are irrelevant to marginal cost.

Why are supply curves upward sloping?

They slope upward because higher prices lead individual businesses to supply a larger quantity and more businesses are willing to supply goods and services.

the key to using the cost-benefit principle is to think about _____ aspects of a decision.

both financial and non financial

Rational Rule for Buyers example:

buy sandwich for $5 when marginal benefit of sandwich for him is $7

Stores that are expected to perform better during recessions are those that sell

inferior goods

the principle that your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future is known as the _____ principle.

interdependence

the law of demand refers to

inverse relationship between price and quantity demanded

Diminishing marginal benefit:

is when buying an additional item yields a smaller marginal benefit than the previous item.

If a seller expects prices to rise in the future

it will stock up today and sell the goods when the price rises

Nerida Kyle could either commute to work via Uber or purchase a new car. The average cost of her one-way Uber trip is $15. Nerida works five days a week for 50 weeks a year. Based solely on avoiding the cost of an Uber, Nerida should purchase a car if the cost of the car is _____ than _____ per week.

less; $150

Taryn is buying shirts online and has to decide how many shirts to buy. She should buy another shirt if the

marginal benefit of the next shirt is at lest as high as the price of the shirt

The _____ suggests, decisions about quantities are best made incrementally

marginal principle

A market consists of ten similar suppliers that are making the same supply decisions. To find the market supply of these ten suppliers, you:

multiply the individual supply of one of the suppliers by ten.

Holding all else constant, if people eat out more at expensive restaurants when they earn more, then expensive restaurant meals are

normal goods

Marie Johnston is a manager at an electronics store and has to decide how many workers to hire. If she hires one worker, her revenue is $400 per day. If she hires another worker, she can make another $350 per day. The marginal benefit of hiring another worker decreases by $50 with each additional hire. Assuming that workers are paid $20 per hour and work eight hours, how many employees should Marie hire, and what will be her total cost for labor?

she will hire five workers and the revenue of the store will be $1,500

Marie Johnston is a manager at an electronics store and has to decide how many workers to hire. If she hires one worker, her revenue is $500 per day. If she hires another worker, she can make another $400 per day. The marginal benefit of hiring another worker decreases by $100 with each additional hire. Assuming that workers are paid $15 per hour and work eight hours, how many employees should Marie hire, and what will be the total revenue of her store?

she will hire four workers and the revenue of the store will be $1,400

Peanut butter and peanut oil are complements-in-production. When the price of peanut butter rises, the

supply of peanut oil will rise

the marginal benefit of consuming an item is

the additional benefit from buying one more unit of that item.

Paint and paintbrushes are complements. If the price of paint rises, we can expect:

the demand for paintbrushes to decrease

what is NOT a factor that can shift supply?

the market price of a product

Variable costs are the costs that

vary with the quantity of output produced

It is a rainy day, and you are considering taking an Uber one mile to meet some friends. You have decided you are willing to pay $20 to avoid getting wet from the rain. The trip would normally cost you $8, but due to the weather the surcharge is triple the regular cost. You should _____ because the benefit to you of taking the Uber is _____ than the cost.

walk; less