Exchange and Opportunity Cost

Question 1

Consumer’s Surplus

Answer 1

A measure of the gains from trade to consumer. Different between what you’re willing to pay and what you have to pay

Question 2

Seller/Producer Surplus

Answer 2

Seller’s surplus is the profit of the seller.

Question 3

Theorem of Exchange

Answer 3

all gains of trade are exhausted at the margin (maximized –> efficiency)

Question 4

Efficiency

Answer 4

Efficiency means producing the maximum amount of output with minimum inputs (resources such as labor, capital, and raw materials)

Question 5

Pareto Optimality

Answer 5

Situation can’t be changed without making someone worse off

Question 6

Pareto Improvement

Answer 6

At least 1 person is made better off, no one is worse off

Question 7

Market Demand

Answer 7

Market demand describes the demand for a given product and who wants to purchase it (downward sloping)

Question 8

Market Supply

Answer 8

Market supply refers to the total quantity of a good or service that all producers in a market are willing and able to sell at a given price. (upward sloping)

Question 9

Equilibrium Price & Quantity

Answer 9

quantity demanded = quantity supplied

Question 10

Deadweight Loss

Answer 10

when supply and demand are out of equilibrium

Question 11

Opportunity Cost

Answer 11

the value of the highest forsaken alternative

Question 12

Broken Window Fallacy

Answer 12

when a window breaks and someone spends money to repair it, he or she has created new economic activity that would not have otherwise taken place

Question 13

Profits (losses)

Answer 13

benefits - costs = P

Profits are maximized when you choose the most valuable option

Question 14

Sunk Costs

Answer 14

Costs than can’t be recovered (lecture seats at SFU)

Question 15

Avoidable Costs

Answer 15

Opportunity costs that aren’t sunk; they can be recovered or avoided

Question 16

Transaction Costs

Answer 16

Cost that arises when you try to cheat one another in an exchange (shoplifting)

Question 17

Fixed Costs

Answer 17

Costs that don’t change without output (independent)

Question 18

Variable Costs

Answer 18

Changes when output changes

Question 19

Absolute Advantage

Answer 19

You are more productive in all activities

Question 20

Comparative Advantage

Answer 20

You are the least cost producer

Question 21

Marginal Cost Curve

Answer 21

supply curve of producers

Question 22

Production Possibility Curve shows us

Answer 22

The max amount of both goods this little economy can produce

Question 23

Marginal cost curves upward sloping

Answer 23

Because individuals have different costs of production

Question 24

Area under marginal cost curve

Answer 24

total costs

Question 25

Rent

Answer 25

Seller’s surplus : revenue cost. An amount that could be taken away from the producer and the same output would still be produced

Question 26

Rent on marginal unit produced is 0, and is where production _____

Answer 26

stops (producers maximized surplus)