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The overriding reason why households and societies face many decisions is that
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resources are scarce.
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The opportunity cost of an item is
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what you give up to get that item
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A rational decisionmaker
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takes an action only if the marginal benefit of that action exceeds the marginal cost of that action
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You are considering staying in college another semester so that you can complete a major in finance. In deciding whether or not to stay you should
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compare the cost of staying one more semester to the benefits of staying one more semester.
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Sarah decides to spend 2 hours working overtime rather than going shopping with her friends. She earns $11 per hour for overtime work. Her opportunity cost of working is
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the enjoyment she would have received had she gone shopping.
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A decrease in the price of a good will
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increase in quantity demanded
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Which of the following changes would not shift the demand curve for a good or service?
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A change in the price of the good or service.
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If the demand for a good falls when income falls, then the good is called
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a normal good.
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Which of the following would shift the demand curve for gasoline to the right?
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An increase in consumer income, assuming gasoline is a normal good
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Suppose that a decrease in the price of good X results in fewer units of good Y being demanded. This implies that X and Y are
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substitute goods
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Making rational decisions at the margin means that people
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compare the marginal costs and marginal benefits of each decision.
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The marginal benefit Joseph gets from purchasing a fourth pair of shoes is
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the total benefit he gets from purchasing four pairs of shoes minus the total benefit he gets from purchasing three pairs of shoes.
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Suppose that the total benefit and total cost from a continuous activity are, respectively, given by the following equations: TB(Q) = 100 + 36Q - 4Q2 and TC(Q) = 80 + 12Q [Note: MB(Q) = 36 - 8Q and MC(Q) = 12].
What are the net benefits when Q = 5?
What are the net benefits when Q = 5?
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40
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Suppose that the total benefit and total cost from a continuous activity are, respectively, given by the following equations: TB(Q) = 100 + 36Q - 4Q2 and TC(Q) = 80 + 12Q [Note: MB(Q) = 36 - 8Q and MC(Q) = 12].
What level of Q maximizes net benefits?
What level of Q maximizes net benefits?
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3
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Janice spends $30,000 per year on painting supplies and storage space. She recently received two job offers from a famous marketing firm - one offer was for $110,000 per year and the other was for $80,000. However, she turned both jobs down to continue a painting career. If Janice sells 25 paintings per year at a price of $8,000 each, what are her accounting profits? (Note: Do not enter a dollar sign in your final answer)
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170,000
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Janice spends $30,000 per year on painting supplies and storage space. She recently received two job offers from a famous marketing firm - one offer was for $110,000 per year and the other was for $80,000. However, she turned both jobs down to continue a painting career. If Janice sells 25 paintings per year at a price of $8,000 each, what are her economic profits? (Note: Do not enter a dollar sign in your final answer)
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60,000
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In order to maximize net benefits, firms should produce where
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marginal benefits equal marginal costs
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What is economics?
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The science of making decisions, in the presence of scarce resources.
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What is the goal of a firm?
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Maximize profits
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What are resources?
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anything used to produce a good or service to achieve a goal.
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What are the two ways to measure profit?
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Accounting Profit and Economic Profit
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Accounting Profit =
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Total revenue- Explicit costs
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What are explicit costs?
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the sum of all expenditures
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John owns a lawn mowing company. Last year, he received a total of $60,000 in revenue. His expenditures were: $5,000 for the lawnmower, $10,000 for the truck, and $5,000 for other materials. What was John's accounting profit?
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$40,000
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Opportunity Cost:
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Value of best alternative use of inputs: Value the time/ money/ resources could be generating if they were deployed in the best alternative way.
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Total Revenue =
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Price x Quantity
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Rational people...
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think at the margin
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Rational decison
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makes decision that them the most well off
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Selfish decsions
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only care about their own well-being. for firms: they only care about maximizing their own profits
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Marginal Benefit
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the additional benefit from producing/consumer one more unit
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Marginal Cost
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The additional cost from producing/ consuming one more unit.
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if marginal benefit > marginal cost
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do it
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if marginal cost> marginal benefit
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don't do it
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Net Benefits =
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total benefits - total costs
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