ECON-1010 Lecture Notes - Lecture 1: Sunk Costs, Diminishing Returns, Opportunity Cost

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champagnegerbil428

4 Aug 2018

School

Vanderbilt University

Department

Economics

Course

ECON-1010

Professor

Buckles Stephen

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ECON-1010 Full Course Notes

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We give up some other opportunity in making a decision. Luxury goods because they will always be an aristocratic class restaurants) Insurance companies paying for medicine sometimes changes price. Also true for things that by nature cost very low (e. g. salt -- normal people v. Stuff that are necessary (medicine) -- healthcare. Subsidized goods follows law of demand. Sometimes : *when the price goes up , wealthy people buy more (fashion items, houses, automobiles)* Simply because they cost a lot and what they say about it. Supply : factors influencing the amount of a good or service brought to a market. Not really a law because there are so many exceptions. When price change in a market, it affects the quantity that biz are willing to produce. When something else changes, overall supply changes. Principle of diminishing returns -- leads to higher prices of products. New supply (as result of increased price of input & reduction of supply) shifts left.

Related Questions

1) For each of the following goods, state whether it is a normal good, a luxury, a necessity, or an inferior good. (Sugar)<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

a) Inferior. Increases in income lead to less use of sugar. However, rich people do not use much less sugar than poor people, so elasticity is positive but greater than 1.

b) Inferior. Increases in income lead to slightly more use of sugar. However, rich people do not use much more sugar than poor people, so elasticity is positive but less than 1.

c) Normal and necessity. Increases in income lead to slightly more use of sugar. However, rich people do not use much more sugar than poor people, so elasticity is positive and greater than 1.

d) Normal and necessity. Increases in income lead to slightly more use of sugar. However, rich people do not use much more sugar than poor people, so elasticity is positive but less than 1.

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2) A perfectly competitive firm sells its good for $24. If marginal cost is three times the quantity produced, how much does the firm produce? Why?

a) Assuming perfect competition, the firm is producing where MR = MC. If the price is $24, and MC is three times the quantity, it is producing 72 units.

b) Assuming perfect competition, the firm is producing where MC is twice MR. If the price is $24, then MC = $48. This means that the firm is producing 12 units.

c) Assuming perfect competition, we do not have enough information to determine how much the firm is producing.

d) Assuming perfect competition, the firm is producing where MR = MC=P. Since price is $24, MR also is $24. If MC is three times the quantity, it is producing 8 units

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3) State the law of supply.

a) Quantity supplied rises as price increases, other things constant. Quantity supplied falls as price decreases, other things constant.

b) Supply increases as price falls. Supply decreases as price rises.

c) Quantity supplied rises as price falls, other things constant. Quantity supplied falls as price increases, other things constant.

d) Supply increases as price increases. Supply decreases as price decreases

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4) If marginal cost is increasing, what do we know about average cost?

a) If marginal cost is increasing, average costs could be rising, falling, or constant. The direction of average costs depends upon whether marginal cost is higher or lower than average cost.

b) If marginal cost is increasing, average costs are rising. As the cost of the next item produced is rising, the average cost of all the items produced must also be rising.

c) If marginal cost is increasing, average costs are falling. Marginal costs only increase at very high levels of production. When items are mass-produced (because of economies of scale) their average costs always fall, even when marginal costs begin to increase.

d) Average cost is constant and always lower than marginal cost because of the law of decreasing marginal productivity. As more items are produced marginal costs increase (the same as productivity decreasing), but average costs remain constant because the total number of items produced is also increasing

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5) (The president of Lebanon Valley College proposed the following tuition program: provide a 50 percent tuition reduction for those graduating in the top 10 percent of their high school class, 33 percent reduction for those in the top 20 percent, and 25 percent reduction for those in the top 30 percent. All scholarship recipients were also required to maintain a minimum GPA. The comptroller estimated that the elasticity of demand for these students was greater than 1.)

Why did the program distinguish among top-performing students?

A) The program distinguished among top students because they were the least likely to respond to scholarships, keeping expenses related to scholarships down.

B) The program distinguished among top students because the top students demanded greater scholarships. The only way to achieve equilibrium was to supply more scholarships to these students.

C) The program distinguished among top students because their elasticities likely differed. The top 10 percent were likely being offered scholarships at other academic institutions, giving them greater choices, which made their elasticities greater.

D) The program distinguished among top students because their elasticities likely differed. The top 10 percent were likely being offered scholarships at other academic institutions, giving them greater choices, which made their elasticities lower.

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6) Say that equilibrium price fell and quantity remained constant. What would you say was the most likely cause?

a) The supply curve shifted left and the demand curve shifted left.

b) The supply curve shifted right and the demand curve shifted right.

c) The supply curve shifted right and the demand curve shifted left.

d) The supply curve shifted left and the demand curve shifted right.

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7) A firm has just decreased its price by 10 percent over last year's price, and it found that quantity sold decreased 20%. What The firm comes to you and wants to know its price elasticity of demand ?

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8) Name two advantages of the behavioral model.

Select all that apply.

a) They better match observed behavior.

b) Each model depends on a specific context and they are not easily generalized to other contexts.

c) Broader building blocks free researchers to look for more patterns in the data.

d) Irrational behavior results in complicated models that are often difficult to solve.

e) They assume people are rational, which better matches reality.

f) All economists agree the assumptions of the behavioral model are realistic.

viridianweasel299

21. The English word that comes from the Greek word for "one who manages a household" is

A- market
B- consumer
C- producer
D- economy

Question 22. 22. For a college student who wishes to calculate the true costs of going to college, the costs of room and board

A- should be counted in full, regardless of the costs of eating and sleeping elsewhere.
B- should be counted only to the extent that they are more expensive at college than elsewhere.
C- usually exceed the opportunity cost of going to college.
D- plus the cost of tuition, equals the opportunity cost of going to college.

Question 23. 23. The phenomenon of scarcity stems from the fact that

A- most economies' production methods are not very good.
B- in most economies, wealthy people consume disproportionate quantities of goods and services.
C- governments restrict the production of too many goods and services.
D- resources are limited.

Question 24. 24. Central planning refers to

A- markets guiding economic activity. Today many countries that had this system have abandoned it.
B- markets guiding economic activity. Today many countries that did not have this system have implemented it.
C- government guiding economic activity. Today many countries that had this system have abandoned it.
D- government guiding economic activity. Today many countries that did not have this system have implemented it.

Question 25. 25. Senator Brown wants to increase taxes on people with high incomes and use the money to help the poor. Senator Johnson argues that such a tax will discourage successful people from working and will therefore make society worse off. An economist would say that

A- we should agree with Senator Brown.
B- we should agree with Senator Johnson.
C- a good decision requires that we recognize both viewpoints.
D- there are no tradeoffs between equity and efficiency.

Question 26. 26. Max and Maddy charge people to park on their lawn while attending a nearby craft fair. At the current price of $10, seven people park on their lawn. If they raise the price to $15, they know that only five people will want to park on their lawn. Whether they have seven or five cars parked on their lawn does not affect their costs. From this information, it follows that

A- they should leave the price at $10.
B- it does not matter if they charge $10 or $15.
C- they would do better charging $15 than $10.
D- they should raise the price even more.

Question 27. 27. A circular flow diagram is a model that

A- helps to explain how participants in the economy interact with one another.
B- helps to explain how the economy is organized.
C- incorporates all aspects of the real economy.
D- Both (a) and (b) are correct.

Question 28. 28. In the markets for goods and services in the circular-flow diagram,

A- households provide firms with savings for investment.
B- households provide firms with labor, land, and capital.
C- firms provide households with output.
D- firms provide households with profit.

Question 29. 29. Incomes of U.S. households in the 1970s and 1980s

A- grew rapidly, due to the widespread success of labor unions in pushing up wages during those decades.
B- grew rapidly, due to several increases in the minimum wage during those decades.
C- grew rapidly, due to government policies that discouraged the importation of foreign products during those decades.
D- grew slowly, due to the slow growth of the output of goods and services per hour of U.S. workers' time during those decades.

Question 30. 30. For economists, statements about the world are of two types:

A- assumptions and theories.
B- true statements and false statements.
C- specific statements and general statements.
D- positive statements and normative statements.

marooncat628

Question 1

The law of demand states that there is a direct relationship between supply and demand.

True

False

4 points

Question 2

Equilibrium is a state of balance between supply and demand.

True

False

4 points

Question 3

Goods are scarce for both rich and poor.

True

False

4 points

Question 4

"The big corporations in this country, like ExxonMobil and GM, have deep pockets and need to be hiring more people." This is a positive statement about economic policy.

True

False

4 points

Question 5

The law of supply states that there is a direct relationship between price and quantity demanded.

True

False

4 points

Question 6

In the circular flow model, firms own economic resources, and householdsbuy the manufactured products and services.

True

False

4 points

Question 7

Households play a dual role of providing the factors of production whilepurchasing the goods and services of firms.

True

False

4 points

Question 8

Opportunity cost is the lowest valued benefit that must be sacrificed asthe result of choosing an alternative.

True

False

4 points

Question 9

Scarcity denotes that our desire for a good exceeds the amount that isfreely available from nature.

True

False

4 points

Question 10

Economics is a social science concerned with satisfying man's unlimitedwants with limited resources.

True

False

4 points

Question 11

Joint output of individuals or nations will be maximized when goods areexchanged between parties in accordance with the law of"comparative advantage".

True

False

4 points

Question 12

The production possibilities frontier assumes that the level of technologyvaries when applying the model.

True

False

4 points

Question 13

Excess demand in the market will cause the price of a product to decline.

True

False

4 points

Question 14

Demand is measured on the vertical axis and supply on the horizontalaxis.

True

False

4 points

Question 15

A change in quantity demanded is a movement along the same demandcurve.

True

False

4 points

Question 16

As globalization and world trade proliferates, individual markets withincountries' economies become more competitive.

True

False

4 points

Question 17

Which growth theory compares a subsistence real wage rate to the actual real wage rate?

		Classical growth theory
		Inflation growth theory
		Neoclassical growth theory
		New growth theory

4 points

Question 18

Suppose the working age population in Tiny Town is 100 people. If 25 of these people are NOT in the labor force, the ________ equals ________.

		unemployment rate; 25/100 Ã 100
		employment rate; 25/75 Ã 100
		labor force; 75
		labor force; 25/100 Ã 100

4 points

Question 19

Suppose there is a rise in the real wage rate. As a result, the quantity of labor demanded:

		increases.
		decreases.
		does not change because there is no change in the money wage rate.
		increases only if the price level also decreases.

4 points

Question 20

GDP can be computed as the sum of:

		all sales that have taken place in an economy over a period of time.
		the total expenditures of consumers and business over a period of time.
		the total expenditures of consumption, investment, and government expenditure on goods and services over a period of time.
		the total expenditures of consumption, investment, government expenditure on goods and services, and net exports over a period of time.

4 points

Question 21

The real wage rate equals:

		(100 x (money wage rate/price level)
		(100 x (price level/money wage rate)
		(money wage rate x (price level)
		(money wage + (number of hours worked/(price level)

4 points

Question 22

If the CPI was 121.5 at the end of 2007 and 138.3 at the end of 2008, the inflation rate over these two years was:

		10.2 percent.
		13.8 percent.
		12.2 percent.
		16.8 percent.

4 points

Question 23

A movement along the production function is the result of a change in:

		the quantity of labor.
		technology.
		capital.
		interest rates.

4 points

Question 24

All of the following are part of fiscal policy EXCEPT:

		setting tax rates.
		setting government spending.
		choosing the size of the government deficit.
		controlling the money supply.

4 points

Question 25

Along a production possibilities frontier for real GDP and the quantity of leisure time, as leisure time increases, real GDP:

		decreases.
		increases.
		stays the same.
		could increase, decrease or stay the same.

lavenderminnow570

ECON-1010 Lecture Notes - Lecture 1: Sunk Costs, Diminishing Returns, Opportunity Cost

ECON-1010 Full Course Notes

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