Core Principles 1 Flashcards
Economics is the study of how people use their?
Limited Resources
Every decision is a _______ decision
Economic
Economics is all about?
Choices
First Core Principle of good decision making is?
Cost-Benefit Principle
Your _____________ __ ___ quantifies the value you get.
Willingness To Pay
What is Microeconomics?
Microeconomics deals with individual households and markets
What is Macroeconomics?
Macroeconomics examines the entire economy of a society
The impact of a federal income tax cut on employment and wages.
Is this Macro or Micro economics?
Macroeconomics
Whether increasing the gasoline tax will result in more people bicycling to work.
Is this Macro or Micro economics?
Microeconomics
The true cost of something is
What you give up to get it
This is the value of the best alternative forgone where, given limited resources, a choice needs to be made between several mutually exclusive alternatives.
Opportunity Cost
Opportunity Costs exists because resources are?
Limited
________ wages are an opportunity cost
Foregone
Costs you have already incurred that cannot be reversed. And is NOT an opportunity cost
Sunk costs
This type of investment opportunity is a opportunity cost
Foregone Investments
Marginal Cost= the change in what over the change in what?
Cost Over Quantity
The benefit associated with consuming one more unit of a good
Marginal Benefit
The negative relationship between quantity consumed and marginal benefit
Decreasing Marginal Benefit
The cost associated with consuming one more unit of a good
Marginal Cost
The study of how people use their limited resources
Economics
Evaluate the full set of benefits and costs for any choice you
face.
Pursue that choice if the benefits are at least as large as the costs
Cost-Benefit Principle
Third Core Principle of good decision making is?
Marginal Principle
Second Core Principle of good decision making is?
Opportunity Cost Principle
If something is worth doing, keep doing it until your marginal benefits
equal your marginal costs. This rule is called?
The rational rule
Marginal Benefits=
Benefit/Quantity
Marginal Cost=
Cost/Quantity
Lexi has decided to build a home East Lansing. She values the first 2,000 square feet at $150 per square foot, and she values all additional square feet at $100 per square foot.
This is an example of?
Decreasing marginal benefits
A builder charges $100 per square foot for the first 1,500 square feet and $125 per square foot for all additional square feet.
This is an example of?
Increasing marginal costs
The fourth Core Principle is?
Interdependence Principle
If MB>MC do it?
More
if MC>MB do it?
Less
When you go to bed the night before your midterm, you note that, for the last hour you spent studying, the marginal benefit of studying was less than the marginal cost. Which of the following is true?
A) You studied the right amount
B) You should have studied more
C) You studied too much
C) You studied too much
This principle is to fully understand the consequences of your decisions, you must take account of how decisions interact with other decisions and with other factors.
Interdependence principle
_____ is the relationship between the price of a good and the quantity of the good the consumers will purchase
Demand
The tendency for quantity demanded to be higher when the price is lower
Law of Demand
Your individual ______ _____ is your marginal benefit curve
Demand curve
Four steps to estimate market demand.
1) Survey your customers, 2) Add up the quantity demanded by each person at each price, 3) Scale the quantities demanded by the survey respondents, 4) Plot the market demand curve
The cheaper something is, the more each customer buys.
Intensive margin
The cheaper something is, the more customers you get.
Extensive margin
Demand curves show us how?
Quantity demand changes
Movement down and to the right on the demand curve is an example of?
Increase in quantity demand
An outward shift in the demand curve is an example of?
Increase in demand
Movement up and to the left of the demand curve is an example of?
Decrease in quantity demand
The MSU basketball team has an excellent start to the season, leading to more fans wanting to attend basketball games. Regarding demand for basketball tickets, this is:
A) A leftward shift of the demand curve
B) A rightward shift of the demand curve
C) Movement “up” along the demand curve
D) Movement “down” along the demand curve
B) A rightward shift of the demand curve
Inward shift of the demand curve is an example of?
Decrease in demand
MSU increases the price for student football tickets. As a result, fewer students attend football games. This is
A) A leftward shift of the demand curve
B) A rightward shift of the demand curve
C) Movement “up” along the demand curve
D) Movement “down” along the demand curve
C) Movement “up” along the demand curve
Due to the popularity of streaming services like Netflix and YouTube, there has been a long-term downward trend in the number of cable television subscribers. Regarding the demand for cable television, this is
A) An outward shift of the demand curve
B) An inward shift of the demand curve
C) Movement “up” along the demand curve
D) Movement “down” along the demand curve
B) An inward shift of the demand curve
A change is price is movement _____ the demand curve
along
A change in “something else” is a _____ of the demand curve
shift
A good for which there is a positive relationship between income and the demand for the good.
Normal good
A good for which there is an inverse (negative) relationship between the demand for the good and income.
Inferior good
An increase in Valerie’s income has caused the change in the graph below. Is the good in the graph normal or inferior? (D1 went inward and to the left)
Inferior
Goods that are viewed as replacements for one another.
Substitutes
Suppose ice cream and pies are substitutes. When the price of ice cream decreases, what will happen to the consumption of pie?A) Quantity of pie consumed increases B) Quantity of pie consumed decreases
B) Quantity of pie consumed decreases
Goods that are used with one another.
Complements
Due to a tax on dairy farms, the price of ice cream goes up. Following this price increase, you observe a reduction in the number of pies sold. This suggests that pie and ice cream are:
A) Substitutes B) Complements
B) Complements
The more other people are consuming the good, the more I want to consume it.
What effect is this called?
Network effect
As the price of a good rises, the quantity supplied will increase, all else held constant.
EXAMPLE: As the price of avocados increases, we expect:
Conversion of farms from growing mangos to growing avocados.
Construction of avocado farms instead of factories.
What principle is this?
Law of supply principle
In the law of demand principle (as price of goods rises, quantity supplied increase) when a price of a product is changed from $5 to $3 (change in quantity demand), what is happening to the supply curve?
Movement along the supply curve
Change in Supply-
Example: Suppose that “something else” other than price changes.
Good weather makes avocado trees produce more fruit.
What is the result?
Supply increases and shifts to the right
Scenario: An increase in the price of beachfront condos:
A) decreases the supply of beachfront condos.
B) increases the supply of beachfront condos.
C) decreases the quantity of beachfront condos supplied.
D) increases the quantity of beachfront condos supplied.
D) increases the quantity of beachfront condos supplied.
Scenario: A major hurricane destroys many beachfront condos:
A) decreases the supply of beachfront condos.
B) increases the supply of beachfront condos.
C) decreases the quantity of beachfront condos supplied.
D) increases the quantity of beachfront condos supplied.
A) decreases the supply of beachfront condos.
Cost of Inputs
When the cost of an input decreases, supply will?
increase (shift to the right)
New technology can reduce production costs and shift the supply curve to the?
If a technology is no longer used, the supply curve will shift to the?
(two questions, two answers)
right
left
Just like there are substitutes in consumption, there are substitutions in production.
Examples: Consume Pepsi or Coke; Grow apples or cherries.
When SUVs become expensive, the supply of non-SUV cars?
Decreases
Scenario: Manufacturing lumber produces sawdust, which is used to create paper.
Question: How would an increase in the price of lumber affect the supply of paper?
A) Increase in supply
B) Decrease in supply
C) Increase in quantity supplied
D) Decrease in quantity supplied
A) Increase in supply (when the price of lumber increases, the quantity of lumber supplied will increase. This will result in more sawdust, which will make it cheaper to manufacture paper.)
Goods that can easily be produced together, Examples: Consume peanut butter and jelly; Produce flowers and honey.
Complements
Expectations: If sellers anticipate future events, it can affect current supply.
Examples: If minimum wage is expected to increase, you may _______ production now to sell before your costs increase.
Increase
Application for Law of Supply-
Scenario: If the price of gasoline is $3.00 per gallon, ExxonMobil produces 6 million gallons per day. If the price increases, all else held constant, what do we expect the quantity produced to be?
A) Less than 6 million gallons
B) More than 6 million gallons
B) More than 6 million gallons
Which of the following should be included when McDonald’s calculates the marginal cost of producing one more hamburger?
A) The salary of the manager of the store
B) The cost of the meat that goes on the burger.
This is because the cost of meat is a variable cost directly related to producing one more hamburger.
C) The cost of its security system
D) The price it sells the hamburger for
B) The cost of the meat that goes on the burger.
Make and sell another item if the price is greater than (or equal to) the marginal cost. What rule is this?
Rational rule for seller
Question: When the price of wheat is $3 per pound, Wheat The Best produces 100 pounds. This means that:
A) The marginal cost of producing the 100th pound is $3.
B) The marginal cost of producing the 100 th pound is $0
C) The marginal cost of producing the 100 th pound is greater than $3
A) The marginal cost of producing the 100th pound is $3.
This is because the firm will produce up to the point where the price (marginal benefit) equals the marginal cost.
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