Questions and Answers
What is the net gain from purchasing a bottle of iced tea priced at $1.25 if the marginal benefit is $1.50?
25 cents
What is the marginal cost of buying a second gallon of milk if the price is $4.00 for one and $6.00 for two?
$2.00
What would a larger reduction in personal income taxes for each child do according to the economic way of thinking?
Reduce the after-tax cost of raising children and increase the birth rate
What does an individual have if they can produce at the lowest opportunity cost?
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Which of the following statements are true? (Select all that apply)
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What is the opportunity cost of an action?
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To obtain the greatest gains from trade, a country should specialize in and ____ those goods for which it has a comparative advantage and ____ those goods for which other countries have a comparative advantage.
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What economic system is characterized by completely private ownership of property?
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In a market economy, who determines who gets the goods and services produced?
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What policy would be most effective in promoting monthly water conservation?
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What demonstrates marginal thinking?
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Which statement is most consistent with the rule of rational choice?
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What does an economist conclude if you lose $20 and choose to search for it rather than work?
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What can be reasonably concluded if resources are free to move across state lines and Oregon specializes in honey while California specializes in almonds? (Select all that apply)
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What does marginal analysis involve?
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Does a downward sloping straight-line production possibilities curve imply a constant opportunity cost?
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Will you purchase a new sport utility vehicle for $22,000 if the expected marginal benefit to you is $20,000?
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What permits gains from trade to be realized?
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What should be true if a student enrolls in an additional course?
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What is the opportunity cost of a concert if a student has a major economics exam in the morning? (Select all that apply)
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What is likely to happen if Lance's boss offers him twice his usual wage to work instead of going on a date?
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Which of the following statements are true? (Select all that apply)
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Study Notes
Marginal Benefits and Costs
- Marginal benefit of drinking bottled iced tea is $1.50; the price is $1.25, resulting in a net gain of $0.25 upon purchase.
- For milk, buying one gallon costs $4.00 and two gallons cost $6.00, making the marginal cost of the second gallon $2.00.
Economic Policies
- Increasing tax reductions for parents would lower after-tax costs of raising children, likely raising birth rates.
- A per gallon fee escalating from $1.00 to $2.00 for consumption beyond 1,000 gallons promotes water conservation.
Comparative Advantage
- An individual has a comparative advantage by producing at the lowest opportunity cost.
- Countries should export goods with comparative advantage and import others for trade gains.
Market Economy
- The hallmark of a market economy is private ownership of property and reliance on market systems for economic coordination.
- Goods and services distribution in a market economy is determined by consumers' purchasing power.
Rational Choice and Opportunity Cost
- Rational choice involves evaluating new drugs by weighing potential health benefits against known side effects.
- Opportunity cost is defined as the highest valued option forgone when making a choice, illustrated by the scenario of losing $20 while choosing to search for it instead of working.
Marginal Thinking and Analysis
- Marginal thinking is evident when deciding to study more if the expected score improvement outweighs the time sacrifice.
- Marginal analysis requires comparing additional benefits of an action to its additional costs.
Production Possibilities
- A downward-sloping production possibilities curve indicates constant opportunity costs.
- If Oregon specializes in honey and California in almonds, both states have comparative advantages, affirming that all statements regarding opportunity costs and advantages are true.
Expected Benefits and Trade-offs
- A vehicle's expected marginal benefit of $20,000 against a price of $22,000 suggests rationality in forgoing the purchase.
- Enrolling in an additional course implies expected marginal benefits must exceed its costs.
- Opportunity costs need consideration when choosing between events, such as attending a concert versus studying for an exam.
Labor and Market Dynamics
- Higher wages offered in exchange for work increase the opportunity cost of personal choices, like a date.
- In product markets, firms buy while households sell; in factor markets, it’s reversed, emphasizing the interdependency in the economy.
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Description
Test your understanding of key concepts in Economics Module 3 with these flashcards. Each card presents a term or scenario followed by its definition, helping you grasp the fundamentals of marginal benefit and cost. Enhance your economic literacy through engaging and interactive learning.
