Core Principles
The cost-benefit principle is a fundamental concept in economics that suggests
action should only be taken if the benefits derived from it are greater than the costs
what is the difference between an inferior good and a normal good?
Normal goods are goods for which demand increases as income increases.
Inferior goods are goods for which demand decreases as income increases.
Paper producers can manufacture both printing paper and drawing paper. What effect would rising prices for printing paper have on the supply of drawing paper?
The supply of drawing paper will decrease.
Wages of bus drivers increase. At the same time, incomes of consumers generally increase. In the market for bus rides, we should expect to see curves shift. The supply curve will --- and the demand curve will ---.
supply = up and to the left (decrease)
Demand = decrease
The study of economics arises because of the necessity of choice, and the necessity of choice arises because of the fundamental problem of:
scarcity
If the price of peanut butter rises, what response do you expect in the market for jelly?
The demand curve will left.
In employing the marginal principle, a seller may:
a- decide whether to supply one more unit of a good or service.
b- compare production of a good or service to the next best alternative.
c- consider the choices made by other sellers in the market.
d- decide whether to charge the perfectly competitive price.
A
Following the Rational Rule, the maximum economic surplus occurs when:
marginal benefits equal marginal costs.
If the price of tea rises, what response do you expect in the market for coffee?
The demand for coffee for rise causing the demand curve to shift right.
Assume plastic is used to make Tupperware. What will happen to the supply of Tupperware if the price of plastic decreases?
The supply curve for Tupperware will shift to the right. Plastic is a resource -- it's price went down so the suppliers can buy more plastic, and therefore produce more Tupperware.
Vincent makes handcrafted dining tables, and he is trying to decide how many tables to produce. He can sell each dining table for $1,000. The cost of the first table is $900, for the second it's $1,100. For each additional table he produces, the marginal cost of each table increases by $200. How many dining tables should Vincent produce, and what is the total cost of his production?
He will produce one table at a cost of $900.
what 6 factors shift the demand curve?
income
preference
price of related goods
expectations
congestion and network effects
the type and number of buyers
Assume a new technology is developed in producing radios. What will happen to the supply of radios?
The supply curve for radios will shift to the right. By definition, a new technology will allow the suppliers to produce more radios at the same cost.
The opportunity cost of a good is
the value of the next best alternative given up to acquire the good.
If everyone thinks that the price of tomatoes will go up next week, what is likely to happen to demand for tomatoes today?
the demand will increase
What are the key supply shifters?
Technology
number of sellers
Goverment policies
input price
expections
price of related outputs