Study Guide Questions Flashcards
The opportunity cost of an item
is what you give up to get that item.
It is said that the U.S. is an “economy of scarcity”. This statement:
is true, because our resources are not sufficient to realize all of our goals
Production possibilities frontiers are usually bowed outward. This is because:
resources are specialized. That is, some are better at producing particular goods rather than other goods.
Mary and Jane both graduated from Cornell with Ph.D.s in economics last year. Both were offered teaching jobs at Harvard this year at $100,000. Mary accepted the offer but Jane got married and is now a homemaker. If war breaks out in Syria and Mary and Jane are drafted into the Army, what is the best estimate of the cost to society of drafting these two women at a salary of $40,000 each?
At least $200,000, because the value of Jane’s services as a homemaker must be at least $100,000.
The cost to society, is the sum of the cost of each individual in that society that best knows the value of their actions. Because Mary turned DOWN 100k to be a housemaker, her time and value to society must be ATLEAST 100,000 because she felt it was worth not taking the Harvard job. So though she does not take the job, she would have been in that position and therefore their cost to society is BOTH 100,000 each aka 200,000
A dentist purchased one ounce of gold in 2000 when gold was selling for $300/ounce. She has kept the gold ever since. Today, gold is valued at $600/ounce. The opportunity cost of using this gold now:
is $600
What matters for this is not the history or the type of thing the good is used for, it is the value of it in today’s market.
Last year Delta airlines purchased and stored 1 million gallons of aviation fuel at a time when aviation fuel was selling for $2.00 per gallon. Aviation fuel is now valued at $3.00 per gallon. The opportunity cost of using this stored fuel now:
is $3M.
If Delta does not use the fuel, they can sell it for $3 million. So by using the fuel for whatever purpose they will be giving up $3 million.
To increase the “Wealth of Nations” or to “reduce poverty,” it is most important to
ensure that consumers receive the goods and services they are most willing and able to pay for at the lowest price. . Ensuring that consumers are able to receive the goods and services they are most willing able to receive at the lowest price also ensures that the resources of the economy are allocated in the most productive manner.
One would expect that if the price of staples doubled
the price of staplers would fall. . Both products are complements. The demand for staplers falls because it is more expensive to own and facilitate a stapler now that staples are expensive.
One would expect that an increase in the price of tomato juice from $1.50 to $2.00 would:
Increase the price of orange juice. Products are substitutes
If the elasticity of demand is 1.5 then, a 10 percent reduction in price
will increase quantity demanded by 15 percent
If the elasticity of demand is 0.5 then, a 20 percent increase in price will:
decrease quantity demanded by 10 percent
Other things constant, an increase in the cost of labor which shifted the supply curve for automobiles inward would increase the equilibrium price of automobiles to a greater degree
The more inelastic is the demand curve
All else being equal, a decrease in the price of microchips being used to make computers, which would shift the supply curve of computers to the right, would decrease the equilibrium price of computers to a lesser degree:
the more elastic is the demand curve
All else equal, an increase in the price of aluminum used to make airplanes, which would shift the supply curve of airplanes to the left, would increase the equilibrium price of airplanes to a greater degree:
the more inelastic is the demand curve
A drought destroys part of the lemon crop but has no effect on the lime crop. How will total revenue be affected in both industries?
Increase for lime producers but might increase or decrease for lemon producers
