Section 1

Question 1

What is economics, and what does it have to do with your life?

Answer 1

Economics is the study of choice. Economics is the study of how individuals or societies choose to use the scarce (limited) resources to try to satisfy their unlimited wants.

Question 2

Microeconomics

Answer 2

is the study of the individual choices/decisions of people and groups (e.g., businesses) and the interactions of those decisions (e.g., in markets).

Question 3

Macroeconomics

Answer 3

is the study of the national economy and the global economy and the way that economic aggregates grow and fluctuate.

Question 4

What are Opportunity Costs?

Answer 4

The real cost of an item.
-The cost of attending the economics class is what you must give up to be in the classroom during the lecture.

Question 5

What are sunk costs?

Answer 5

the opposite of opportunity costs are sunk costs which are costs that were incurred in the past and cannot be recovered anymore. They exist no matter whether a certain activity is conducted or not.

Question 6

Explicit Cost

Answer 6

a cost that involves actually laying out money.

Question 7

Implicit Cost

Answer 7

does not require an outlay of money; it is measured by the value, in dollar terms, of the benefits that are forgone.

Question 8

Accounting Profits

Answer 8

the business’s revenue minus the explicit costs and depreciation.

Question 9

Economic Profits

Answer 9

the business’s revenue minus the opportunity cost of its resources. It is often less than the accounting profit.

Question 10

Marginal Cost

Answer 10

The marginal cost of producing a good or service is the additional cost incurred by producing one more unit of that good or service.

Question 11

Increasing Marginal Costs

Answer 11

Each unit of a good costs more to produce than the previous one (As in Alex’s example)

Question 12

Constant Marginal Costs

Answer 12

Production of a good or service has constant marginal cost when each additional unit costs the same to produce as the previous one.

Question 13

Marginal Benefits

Answer 13

The marginal benefit of producing a good or service is the additional benefit earned from producing one more unit of that good or service

Question 14

How is the optimal level of an activity determined, using (marginal) benefits and (marginal) costs?

Answer 14

The principle of marginal analysis says that the optimal quantity is the quantity at which marginal benefit is equal to marginal cost. MB=MC
-If there is no quantity at which MB = MC, then choose the largest quantity, at which MB > MC