week 1 Flashcards
(15 cards)
why economists use monetary values
they provide a common metric for measurement that enables them to compare the costs and benefits of a variety of different outcomes.
Expressing benefits and costs in monetary terms simplifies the process of analyzing the decisions that we make in our everyday lives
During the economic downturn of 2008–2009, the unemployment rate increased to nearly 10%. At the same time, the price of college tuition and the number of college enrolees increased. Using the opportunity cost principle, explain why more people would enroll in college during this time period even as the price of college increased.
the opportunity cost of going to college or uni is less because of how high unemployment was thus the opportunity cost of earnings is no longer there due to the unemployment
additionally when the economy is in a recession wages and job opportunity tend to be lower
You are considering whether you should go out to dinner at a restaurant with your friend. The meal is expected to cost you $40, you typically leave a 20% tip, and an Uber will cost you $5 to get there. You value the restaurant meal at $20. You enjoy your friend’s company and are willing to pay $30 just to spend an evening with her. If you did not go out to the restaurant, you would eat at home using groceries that cost you $8. How much are the benefits and costs associated with going out to dinner with your friend? Should you go out to dinner with your friend?
additionally what is the process of working out the cost benefit analysis
. The benefits are $58. You receive $20 worth of benefit from the restaurant meal itself. You also receive $30 worth of benefit from having dinner with your friend. Additionally, by not eating at home, you will save $8 on the groceries you would have purchased. The total benefit, therefore, would be $58. The costs are $53. The price of the meal will be $40. You will also leave a 20% tip, which adds another $8. Your car fare is $5. So, the total cost would be $53. The total benefits are equal to $58 and the total costs are equal to $53. So, going to dinner with your friend will yield $5 worth of economic surplus and you should go out to dinner with your friend.
to work out the process you need to add up the cost of each side of the debate then compare which is the higher benefit
. The accompanying table provides the combinations of time spent studying economics and astronomy and your expected exam scores.
Hours spent studying economics (first column) Economics exam ( second column) score Hours spent studying ( third column) astronomy Astronomy exam score ( fourth column)
0 60 0 70
1 80 1 83
2 90 2 87
3 95 3 90
4 98 4 92
a) what would a ppf curve look like.
b) if your goal was to maximise your score how many hours should you spend studying each subject
a) it would like a curve with 4 points. with the points being for where they improve the score corresponding to the hours
b) add up to the scores for each possibility the one with the highest combined to score wins.
You just took an Uber from home to campus for the first time and were willing to pay $13 for the trip. It was so much easier than driving yourself that you are willing to pay $21 for the same trip tomorrow. Have you violated the law of demand? Why or why not?
The law of demand states that a higher price leads to a lower quantity demanded and that a lower price leads to a higher quantity demanded.
No because your willingness to pay for items changes and the individual willingness to pay increased due to the positive experience. However if the uber ride is 50$ then you will likely not demand any rides
what is the cost benefit principle ?
comparing the cost of an item say coffee. If you value the benefit of the item as higher or the same as the cost.
what is economic surplus
total benefit minus the total cost
what is sunk cost
a cost that has been incurred and cannot be reversed
what does the ppf allow for?
allows us to illustrate opportunity cost. The opportunity cost of allocating more recourses in one thing will result in less of the other creating opportunity cost .
what is the marginal principal?
individuals make decisions by comparing the additional benefit (marginal benefit) they will receive from an activity to the additional cost (marginal cost) incurred, essentially choosing the option where the marginal benefit equals the marginal cost, maximizing their overall utility or satisfaction; it’s about making decisions “on the margin” by considering the impact of one more unit of something rather than the total amount. So decisions are being made incrementally
what is the rational rule?
if something is worth doing it keep doing it till marginal benefit equals marginal cost.
Following this rule leads to good decisions
what is diminishing marginal benefit?
each additional item yields smaller marginal benefit
what can cause a movement along the demand curve?
Movement along the demand curve is due to a change in price or quantity
what causes a shift in demand?
A shift of the demand curve is causes by an increase or decrease in demand
what factors can shift the demand curve?
Incomes, price of related goods(complements and substitutes) , preferences, expectations
