Defining Terms
The max amount a consumer is willing to pay for a good or service.
What is Willingness to Pay (WTP)
You paid $4 for a coffee that you valued at $4.50. Your economic surplus is
What is $0.50
Instead of hanging out with your friends, you stay home to study for your exam. The fun you missed out on at the party is an example of this.
What is opportunity cost
True or False: If a shirt is on sale for 50% off, you should always buy it because you are saving money.
What is false (only buy it if your willingness to pay is greater than or equal to the price)
The additional benefit gained from consuming or producing one more unit of a good
What is Marginal Benefit (MB)
A concert ticket costs $80, but your maximum willingness to pay is only $50. Should you buy the ticket?
What is no
Point A lies inside the Production Possibilities Curve (PPC). An economist would say this economy is operating in this manner.
What is inefficiently
Buying a second energy drink because you enjoyed the first forgets that the satisfaction from each additional drink usually does this.
What is decreases
The additional cost incurred from consuming or producing one more unit of a good.
What is Marginal Cost (MC)
You have spent 4 hours studying. Deciding whether to study for an extra hour is an example of what?
What is thinking at the margin
You decide to skip 2 hours of work to hang out with your friends. You make $10/hour, so your opportunity cost in lost wages is this amount.
What is $20
You buy a $3 ice cream cone and get $3 worth of enjoyment from it. Your economic surplus is this amount.
What is $0
The difference between what a consumer is willing to pay and what they actually pay.
What is economic/consumer surplus
A shop offers a refill for $1. The cost of the original cup is irrelevant to this decision because it is this type of cost.
What is a sunk cost
When an economy gets new technology or better machinery, the PPC will shift in this direction.
What is outward (to the right)
True or False: If Marginal Benefit (MB) is equal to Marginal Cost (MC), an economist would say you should NOT do the activity.
What is False (MB=MC, do it)
In economics, this term means analyzing choices based on small changes rather than total values.
What is thinking at the margin
A worker costs $20 to hire and makes $30 worth of extra goods for the shop. Hiring this worker changes the total profit of the store by this amount
What is +$10
These things shift the PPC.
If the Marginal Benefit (MB) of buying a third slice of pizza is $2 and the Marginal Cost (MC) is $3, buying that slice will cause your total net benefit to do this.
What is decrease by $1