L11 Econ 1011 Chapter Notes - Chapter 1: Rationality, Opportunity Cost, Sunk Costs

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crimsongnat981

15 Sep 2016

School

WUSTL

Department

University College - Economics

Course

L11 Econ 1011

Professor

Bandyopadhyay Sudeshna

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Document Summary

Economics is useful because there is a problem of scarcity in the world. Econ teaches us how to best make choices. The scarcity principle: no free lunch: our wants are unlimited while our resources are limited. Implicit cost non-cash cost of an activity. Cost-benefit principle an individual should take an action if, and only if, the extra benefits from taking the action are at least as great as the extra costs. Simplifying assumptions economists simplify models to be able to receive conclusive results. Intrinsic value of a coin depends on the person picking it up. Opportunity cost highest value net benefit you give up because you cannot do something else. Explicit cost/money cost/accounting cost cost of doing something. Economic surplus net benefit of taking an action (benefit cost: person a would buy a coffee for up to at a store. It costs to make it at home.

Related Questions

Can you solve them and tell me if youre sure 100% 100% 100%

Question 1 (1 point)

If two variables move together but are otherwise unrelated, we have

Question 1 options:

a fallacy of composition.

an econometric model.

a spurious correlation.

an efficiency problem.

evidence of a weak correlation but strong causation.

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Question 2 (1 point)

The Latin expression "ceteris paribus": is essential in ______.

Question 2 options:

collecting data.

identifying sunk costs.

evaluating theories.

recognizing scarcity.

developing spurious relationships.

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Question 3 (1 point)

Opportunity cost is best defined as

Question 3 options:

marginal cost minus marginal benefit.

the time spent on an economic activity.

the value of the best forgone alternative.

the monetary cost of an economic decision.

marginal cost plus marginal benefit.

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Question 4 (1 point)

A cost that cannot be recovered at the time a decision is being made is termed a(n)

Question 4 options:

marginal cost.

scarcity cost.

sunk cost.

average cost.

opportunity cost.

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Question 5 (1 point)

If the marginal costs of 1, 2, and 3 hours of talking on the phone are $50, $75, and $105, then the total costs are

Question 5 options:

$50, $150, and $315.

$50, $41.67, and $115.

$50, 125, and $230.

$50, $175, and $405.

impossible to calculate with information given.

Save

Question 6 (1 point)

In general, individuals should specialize in producing those goods for which they

Question 6 options:

can produce more quickly than others.

can produce less quickly than others.

have the lowest opportunity cost compared to others.

have the highest opportunity cost compared to others.

have an average opportunity cost.

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Question 7 (1 point)

The extra benefit that comes from an extra unit of activity is called the _________ of the activity.

Question 7 options:

benefit

marginal benefit

marginal cost

average benefit

reservation benefit

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Question 8 (1 point)

The marginal benefit of an activity is the

Question 8 options:

same as the total benefits of the activity.

total benefit divided by the level of the activity.

change in the activity divided by the change in benefits.

extra benefit associated with an extra unit of the activity.

total benefit divided by the change in the level of the activity.

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Question 9 (1 point)

The fundamental problem that is studied in economics is that

Question 9 options:

consumers have limited wants in the face of unlimited resources.

markets should function without government interference.

Canada is too wealthy.

consumers have unlimited wants in the face of limited resources.

there are unlimited resources.

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Question 10 (1 point)

The range of topics, or issues, that fit within the definition of economics is

Question 10 options:

limited to market activities, e.g., buying soap.

limited to individuals and firms.

extremely wide, requiring only the ideas of choice and scarcity.

limited to governments and nations.

very limited.

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Question 11 (1 point)

When economists make predictions using the framework of a given economic model, it is usually based on

Question 11 options:

personal experiences.

important relationships between particular variables.

mathematical abstractions.

political implications.

the profit-maximizing objective.

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Question 12 (1 point)

The cost of spending an evening partying instead of studying economics is

Question 12 options:

the resulting decrease in the test score in Economics.

the time spent at the party.

the score of the test.

the cost of the textbook.

university tuition.

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Question 13 (1 point)

As one progresses from a one-person economy to a large, multi-person economy, the shape of production possibilities curve changes from

Question 13 options:

downward sloping to upwards sloping.

linear to convex (bowed into the origin).

concave (bowed out from the origin) to linear.

convex (bowed into the origin) to concave (bowed out from the origin).

linear to concave (bowed out from the origin).

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Question 14 (1 point)

Which is NOT a sunk cost?

Question 14 options:

Monthly rent of $1,000 contractually specified in a one-year lease.

An insurance premium of $50 per year, paid last month.

An attorney's retainer of $50,000 per year.

A worker's wage of $15 per hour.

A non-refundable deposit for a tender.

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Question 15 (1 point)

"We should support government intervention because the market produces undesirable outcomes" is an example of

Question 15 options:

positive economics.

normative economics.

comparative economics.

negative economics.

formative economics.

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amberchimpanzee966

Need help revising, and recommendation for a conclusion.

Throughout this paper is my understanding of what I have learned in class chapters 1-4, expressing my understanding and opinions. Economics is the study of how we deal with scarce resources. Microeconomics specially deals with business in the home country exclusively. This type of economics affects small businesses in the home country only. On the other hand, macroeconomics concerns our national welfare concerning trade and international business.

I believe that many things affect our economy on a microeconomics level. Things such as our understanding of our country in reflection to the world are very important. That is why we study ourselves before we study the macroeconomic principle of the world. Understanding ourselves is what microeconomics teaches us. Working from the inside out. The world is a place where there are differences in our wants and what we get. That is what makes items scarce. That is what positive economics is. Positive economics deals with what is and what we have. The other type of economics is called normative statements. This deals with what we should receive instead of what is and deserved to some extent. It's our scarce resources that determine our allocation of resources and how we use our resources and time. This is where opportunity costs come in, giving up something to do something. A successful business or country never ignores opportunity costs. We must ensure that we have a comparative advantage instead of the absolute advantage. Our resources must be used to achieve maximum output. Comparative is met when we have fewer opportunity costs to make some certain products than the other person or entity.

My initial understanding was scarcity was oil potentially running out, but we have so much of it that you can always find more with techniques such as fracking. Now it's obvious to me, one of our most scarce resources is time. You cannot avoid the 8,760 hours in a year. I understand that people have unlimited wants but limited resources. Everything has a cost and we must make a choice as we don't have unlimited farms, factories workers, etc. scarcity forces choices and this ties in with opportunity cost, for every gun made, a theft from the hungry is made. The opportunity cost not being used to feed the poor, but to make guns. And I find it easy to understand no one can have everything choices must be made on benefits. If I'm going to school, imp giving up making cash, as I'm giving up money for an education, I value education more. Scarcity is also related to the invisible hand. As it's an achievement that leads free markets and capitalism through competition for scarce resources.

My understanding of the invisible hand is a person neither intends to promote public interest and does not know how much he is promoting it. Only intending on his own gain. Without being his intention a person can be lead by the invisible hand to do good for society by pursuing one's own self-interest. Going into equity and efficiency the invisible hand does ensure both equity and efficiency. People work in their selfish ways to maximize profit while also contributing to the economy as a whole. It can also be argued that as the invisible hand wants to ensure efficiency, it cannot guarantee efficiency, because it can fail to produce an efficient allocation of resources, which in turn lead to a market failure. It can also be argued that it can't guarantee equity because not everyone gets a fair price. The way I like to remember efficiency is with a real-life example, like a reduction in the number of workers needed to produce a particular good for a particular amount. Equity refers to the ownership interest in an asset, for example, if a person owns a house with a market value of $800,000 and owes $100,000 on the mortgage leaving a $700,000 equity in the home.

It can be predicted that if the price of beef increases - ceteris paribus-the quantity of beef demanded by buys will decrease. In other words, if the price of beef increases, then the quantity of beef increases, then the quantity of beef demanded will decrease because all things have to be equal. In-class lecture thought me all other things remaining the same. Economists use ceteris paribus to determine the effect of a factor when all other factors have been held the same and helps simplify the study and get a more refined data set.

Economists deal with many issues that pertain to assuring that both a countries domestic output is efficient and that there is an effective trade balance. This means that there are a balance and limit on the amount of imports. Also, this means home production must be able to meet export demands. There are many factors that affect the production of goods and their effect on shifting the production possibilities frontier. This involves evaluating every detail including knowing the products and any close substitutes and compliments. It also involves knowing how an action or other external force will affect demand. This is called price elasticity; Substitutes are products that can replace any given product or service. An example of this would be Coke and Pepsi. The presence of substitutes affects price elasticity because if there are other options, then any change to the price or quality of the product will cause a shift of the demand curve. O course, price is a huge reason why the demand for a product decreases or increases yet it doesn't shift the curve because of the price only. This price change will cause a domino effect that will end with the shifting of the demand curve because it will cause an increase or decrease in demand of the substitute good if the price change is either lower or higher respectively. This price change serves as a catalyst that will change people's desire to spend more money on a more expensive product and that will instead choose to buy the substitute good for cheaper or buy more of the desired product. The change in the price of actual products will not shift the demand curve yet the change of the price of substitutes will because it serves to change people's purchasing behavior. On the other hand, compliments serve to boost demand when there is a decrease in price. The use of complementary goods is dependent upon another product. An example of this would be hot dogs and buns. If the price of hotdogs decreases then, conversely, the demand for hot dog buns will increase because of this change in price. In this scenario, the decrease in price will cause a positive shift in the demand curve because of people's desire and willingness to buy more buns. This is an example of a demand shifter. There are a few other demand shifters. The shifters of the demand curve are changes in expectations, disposable income, price of substitute goods and complements, tastes and preferences, and population size and composition. Changes in income affect the demand curve because if income is lower then people tend to save any extra income instead of wasting it. Disposable income is minimized and spending is lower. This also causes people to see a perceived value of things and distinguishing between what is necessary and what is a relative luxury. The lower the income, the higher the saving and avoidance to spend. An example of this would be if someone needs to buy some medication and it is relatively expensive, that doesn't mean that someone won't buy the medication just because it is expensive. It is necessary. Other factors that contribute to spending and demand are having a price ceiling and price floor. Having a price ceiling is a limit on the price of the product this is a government-imposed idea that is meant to protect consumers from unfair pricing and other conditions that may be malicious or obscure. This affects demand because if there is a price ceiling there is a limit on profit on a unit-to-unit basis. The other factor is the price floor. This price floor was created to encourage competition and affect consumers' willingness to pay because sometimes this new price may be higher than the original price. This causes a negative impact on a product that has a less than wanted perceived value. Many factors contribute to economic prosperity and certainly do help assure that information is analyzed and implemented into an economic and business plan.

limejellyfish231

Microeconomics Multiple choice questions. Please answer all the questions.

1. Scarcity:
A. exists because resources are limited while human wants are unlimited.
B. means we are unable to have as much as we would like to have.
C. will likely be eliminated as technology continues to expand.
D. is not an issue addressed in economics.

2. People are forced to make choices because of:
A. unlimited wants and unlimited resources.
B. limited wants and unlimited resources.
C. unlimited wants and limited resources.
D. limited wants and limited resources.
E. irrational wants and limited resources.

3. Which of the following is closest to the definition of capital?
A. c and e.
B. c and d.
C. Tools, equipment, means of transportation
D. Factories and machinery.
E. Borrowed money.

4. Which one of the following is the most accurate definition of economics?
A. Economics is the study of stocks and bonds.
B. Economics is the study of how people allocate unlimited resources.
C. Economics is the study of how consumers choose to spend their income.
D. Economics is the study of how society chooses to allocate scarce resources.

5. The basic difference between macroeconomics and microeconomics is:
A. microeconomics concentrates on individual markets while macroeconomics focuses primarily on international trade.
B. microeconomics concentrates on the behavior of individual consumers while macroeconomics focuses on the behavior of firms.
C. microeconomics concentrates on the behavior of individual consumers and firms while macroeconomics focuses on the performance of the entire economy.
D. microeconomics explores the causes of inflation while macroeconomics focuses on the causes of unemployment.

6. Which of the following is not a resource?
A. Land.
B. Labor.
C. Money.
D. Capital.

7. Which of the following would an economist classify as capital?
A. 100 shares of Microsoft stock.
B. $50 bill.
C. credit card.
D. lawyer's personal computer.

8. Economics, according to its definition, studies how people:
A. earn and spend money.
B. invest in the stock and bond markets.
C. make choices in the face of scarcity.
D. supply goods in response to demand.

9. Which of the following is the best example of a microeconomic topic?
A. The impact that the money supply has on inflation.
B. The reasons for increases in the price of soft drinks.
C. The effect that federal budget deficits have on the interest rate.
D. The tradeoff between inflation and unemployment.

10. Which of the following is a macroeconomics topic?
A. Wages of textile workers in the Northeast.
B. The cost of producing 10,000 bookcases.
C. The economy's annual growth rate.
D. National demand for fish.
E. Effects of farm subsidies on food prices.

11. An economic theory claims that a rise in gasoline prices will cause gasoline purchases to fall, Ceteris paribus. The phrase "Ceteris paribus" means that:
A. other relevant factors like consumer incomes must be held constant.
B. the gasoline prices must first be adjusted for inflation.
C. the theory is widely accepted but cannot be accurately tested.
D. consumers' need for gasoline remains the same regardless of the price.

12. An economic model is:
A. a plastic scaled version of the economy.
B. a complete depiction of reality.
C. an abstraction from reality.
D. applicable to consumer behavior but not to producer behavior.
E. not an accepted tool of the economics profession.

13. Which of the following sayings best reflects the concept of opportunity cost?
A. "You can't teach an old dog new tricks."
B. "There is no such thing as a free lunch."
C. "I have a baker's dozen."
D. "There's no business like show business."

14. The opportunity cost of watching television is:
A. all of the alternative programs that appear on other stations.
B. zero because there is no money expenditure involved.
C. the alternative use of the time foregone by watching the program.
D. zero if it benefits you.

15. Which of the following does not illustrate opportunity cost?
A. If I study, I must give up going to the football game.
B. If I buy a computer, I must do without a 35" television.
C. More consumer spending now means more spending in the future.
D. If I spend more on clothes, I must spend less on food.

16. When deciding whether to buy a second car, marginal analysis indicates that the purchaser should compare the:
A. benefits expected from two cars with the cost of both.
B. additional benefits expected from a second car with the cost of the two cars.
C. dollar cost of the two cars with the potential income that the cars will generate.
D. additional benefits of the second car with the additional cost of the second car.

17. According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study:
A. is positive.
B. outweighs the extra cost.
C. exceeds the benefits of the previous hour of study.
D. will raise your exam score.

L11 Econ 1011 Chapter Notes - Chapter 1: Rationality, Opportunity Cost, Sunk Costs

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