Opportunity Cost
If you decide to spend $20 on a book instead of a meal, the opportunity cost of buying the book includes the $20 and this forgone benefit.
What is "the enjoyment of the meal"?
According to the law of demand, when the price of a good rises, the quantity demanded typically does this.
What is "decrease"?
Two nations, Gleeble and Fleeble, produce wheat and steel. Nation Gleeble can produce 100 tons of wheat or 50 tons of steel. Nation Fleeble can produce 80 tons of wheat or 40 tons of steel. Nation Gleeble should specialize in this product for trade based on comparative advantage.
What is "wheat"?
This term describes the deadweight loss resulting from underproduction or overproduction caused by a tax or subsidy.
What is "inefficiency"?
When a tax shifts supply to the left, this group shares the burden most if demand is highly elastic.
Who are "producers"?
When a farmer uses land to grow wheat instead of corn, the lost corn production and the inputs dedicated to growing wheat are referred to by this economic term.
What is "opportunity cost"?
If the price of oranges increases, the demand for apples, a substitute good, will likely do this.
What is "increase"?
If Lady Gaga's opportunity cost of producing one pair of shoes is giving up three hats, and Sabrina Carpenter's opportunity cost of one pair of shoes is giving up four hats, this artist should specialize in shoes for trade.
Who is "Lady Gaga"?
The new equilibrium quantity after a supply shift will depend on this relationship between the supply and demand curves.
What is "the relative elasticities of the curves"?
A subsidy introduced for corn creates inefficiencies if the increase in consumption does not outweigh this economic consequence. (hint: if subsidies can be considered benefits, what are the costs?)
What is "the cost of the subsidy to taxpayers"?
A baker earns $500 per day making bread. If they close their shop for one day to attend a wedding, these two things make up their opportunity cost.
What are "the $500 in lost revenue and the cost of attending the wedding”?
A technological improvement in car manufacturing lowers production costs. The supply curve for cars will shift in this direction.
What is "to the right (increase in supply)"?
A factory produces two goods. To produce one additional smartphone, it sacrifices the production of 10 fitness trackers. If the marginal utility of a smartphone is 120 utils and the marginal utility of a fitness tracker is 15 utils, does this decision maximize total utility?
What is "no, because the 150 utils sacrificed from the trackers exceed the 120 utils gained from the smartphone"?
A perfectly competitive market adjusts to a subsidy. The effect on total surplus depends on this relationship between elasticity of demand and supply.
What is “the more elastic the curves, the larger the increase in quantity traded, leading to a greater total surplus gain, as both consumers and producers are more responsive to the subsidy"?
Imposing a quota below the equilibrium quantity affects market efficiency by creating this gap between consumer willingness to pay and supplier cost.
What is "deadweight loss"?
A company owns a delivery truck. If the company uses the truck for its own deliveries instead of renting it out, the cost of fuel represents this part of opportunity cost.
What is "explicit cost"?
A bakery faces higher flour costs. As a result, this change occurs in the supply curve for bread, leading to a new equilibrium price.
What is "the supply curve shifts to the left (decrease in supply), causing the equilibrium price to rise"?
In one day, I can make eight edits of celebrities or leave twenty beautifully crafted comments on Instagram. My arch nemesis Dale can make six edits of celebrities or leave twelve beautifully crafted comments on Instagram. Misapplying this economic principle might lead you to assume that I have nothing to gain from trading with Dale.
What is “absolute advantage”?
A price floor in a labor market above equilibrium causes this result for workers and employers.
What is "unemployment"?
A tax imposed on a good will raise more revenue if this characteristic of supply and demand curves is true.
What is "both curves are relatively inelastic"?
A college student spends four years earning a degree instead of working a job that pays $40,000 annually. The opportunity cost of the degree includes tuition costs and this additional factor.
What is "the $160,000 in foregone wages"?
An online retailer introduces same-day delivery, increasing the perceived value of their products. This change 1) shifts this curve and 2) has this effect on equilibrium price and quantity.
What is "the demand curve; both equilibrium price and quantity increase"?
Japan can produce 500 tons of cheese with 10 workers, while the US can produce 600 tons with 10 workers. The US’s absolute advantage does not negate the potential for trade because of this economic principle.
What is "comparative advantage"?
A monopolist raises prices above equilibrium, creating deadweight loss. This occurs because the price exceeds this marginal economic concept. (hint: there are people on the demand curve who would buy the good under normal market conditions)
What is "marginal cost"?
When governments impose a tax, the ultimate incidence of the tax depends on this comparison between elasticity of supply and elasticity of demand.
What is "the side of the market that is less elastic bears more of the tax burden"?