01:220:102 Study Guide - Midterm Guide: 3 Lbs, Wii, Opportunity Cost

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Published on 4 Jan 2019
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Exam 1 preparation
One of the causes of a recession is the economy producing a higher amount of goods and
services then what people want to buy.
Shortfalls in spending are responsible for most, though not all, recessions.
When spending is too high inflation
Opportunity cost is the value of the next best alternative. It is what you give up to do something
else.
o Example you take off 5 hours from work to go to a baseball game -ticket $20, parking
$15 and work is $10 hour
Opportunity cost: (5 x10) = $50.
It is the cost of not going to work in place of going to the baseball game
o Example if you were offered three babysitting jobs one $30, one for $40 and one for
$60, what is your opportunity cost
She choose to babysit for $60
Opportunity cost is $40 which was the next best alternative
The decision on whether or not to eat 4 cookies is a MARGINAL DECISION
Economists work for the federal reserve
Close tie between economics and politics
Suppose that in an hour Chip can gather 8 pounds of fruit or 4 pounds of nuts. In an hour, Monk
can gather 9 pounds of fruit or 3 pounds of nuts. Which of the following choices would benefit
both Chip and Monk if trade occurred?
o Chip 8lbs Fruit or 4 lbs of nuts
8/4 = 1lb of Fruit costs 2 lbs Nuts
4/8 = 1lb of nuts costs ½ lb of fuit
o Monk 9 lbs of fruit or 3 lbs of Nuts
9/3 = 1lb of Nuts costs 3 lbs of fruit
3/9 = 1 lb of fruit costs 1/3 lb of nuts
o A mutually beneficial trade would be
Trade 2.5 lbs of fruit for 1 lb of nuts
Value added tax a national sales tax which is the main source of government revenue in many
European countries
o Falls more heavily on people of modest means
o There are high costs associated with the monitoring of consumption spending needed to
assess value-added taxes
A positive statement based on facts data to back up, AVOIDs value judgement
A normal statement based on “should be” or “ought to be”, incorporates value judgements
If price of ebooks a substitute of printed textbooks increases the demand for printed
textbooks will increase
Wii consoles and Wii video games are complements. If the price of Wii
consoles goes up, the demand curve for Wii video games will: SHIFT LEFT
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