People pay more for diamonds than for water because
marginal benefits from water are low and marginal benefits from diamonds are high.
Your preferences measure
how badly you want something.
Demand for gasoline increases on Fridays because
everyone expects gasoline prices will rise on Saturday.
Canada has an absolute advantage in situations where
we can produce at lower cost than producers in other countries.
Production possibilities for two furniture producers, Edward and Samoor, are shown in the table
below:
Edward's Production Possibilities (monthly) Samoor's Production Possibilities (monthly)
Chairs
Tables
Chairs
Tables
100
0
75
0
80
10
60
15
60
20
45
30
40
30
30
45
20
40
15
60
0
50
0
75
In this case, Edward has an absolute advantage in producing chairs.
If a rise in the price of product A causes the demand for product B to decrease, then
A and B complements.
The opportunity cost for you to attend college
may be greater, equal to, or less than, the money cost.
might be described as the income you could have earned at a full time job.
A rise in the price of a substitute product, Y
Increases the demand for product X.
A good economic model
is difficult to test.
assumes that "other things are unchanged."
is the mental equivalent of controlled experiments in a laboratory.
leaves out unnecessary information.
does all of the above.
In one hour, Chloe can bake 24 cookies or 12 blueberry muffins; Zabeen can bake 6 cookies or 2
blueberry muffins. For mutually beneficial trade, Chloe should
bake muffins because she has a comparative advantage.
You have a bet that you can eat more pizza slices than your friend. The loser has to pay for all the
pizza. Which statement is true ?
Your total benefit increases with each slice of pizza you choose to eat.
Each additional slice of pizza has a lower marginal benefit than the slice before.
You will stop eating when the expected marginal benefit of the last slice is zero.
As long as you don't get sick, there will be some positive marginal benefit from every slice you
choose to eat.
All of the above are true.
Inputs of an economy are
the productive resources used to make products and services.
Look at the market for water in Figure 2.3.1. At point C,
the maximum price people are willing and able to pay for the 3,000th cubic metre of water is
$2.
Last week Santiago found a new pair of red Nike Air Soles in the parking lot. He had just paid $120 to
buy a pair of blue Nike Air Soles a few days earlier. A friend offers $80 to buy the pair of red Air Soles.
Santiago says no and decides to keep both pairs for himself. The opportunity cost of this decision is
$80.
Market demand is the
sum of the quantities demanded by all individuals at each price.
Specialization eliminates
self−sufficiency.
It takes Mom 30 minutes to cook dinner. In the same time, she can iron 6 shirts. Dad takes an hour to
cook dinner and 30 minutes to iron a single shirt.
Mom's opportunity cost of cooking dinner is ironing 6 shirts.
At a price of $1.70, Michael buys 3 muffins and Rose buys 8 muffins. The market demand for these
two individuals at a price of $1.70 is
11 muffins.
Which is a microeconomic topic?
why a consumer buys more chai lattes
Costs are
whatever we are willing to give up.
In deciding whether to study or sleep for the next hour, you should consider all of the following except
how much tuition you paid.
Demand ________ if the price of a ________ product or service ________.
increases; substitute; rises
Demand ________ if consumers' incomes ________ and this is a ________ good.
increases; decrease; inferior
The problem of scarcity
arises because of limited time, money, and energy.
Which of the following statements about scarcity is true?
Scarcity exists in all societies.
The main implication of scarcity in economics is that
people must make choices.
Because you can never satisfy all of your wants, making the most out of your life requires
smart choices about what to go after and what to give up.
Opportunity cost
is the cost of the best alternative given up.
Don would like to go to college. He is qualified to get a job that pays $35,000 per year. If he goes
to college, tuition, books, and other things, such as transportation and supplies, that are directly
related to attending college will cost $25,000 per year for a two-year period. Assuming he cannot work
while attending, the opportunity cost of his diploma
$120,000 (The opportunity cost includes money cost and the value of other things given up. If
Don makes his decision on the basis of only the money costs directly related to attending
college, he would underestimate the opportunity cost. The opportunity cost of his degree
includes the $35,000 per year (or $70,000 for the two-year period) that he could have received
as salary from his employment plus the money cost of tuition, books, and other things, such
as transportation and supplies for two years ($25,000 for 2 years is $50,000). Thus, the
opportunity cost of going to college is $120,000.)
In making a smart choice,
the value of what you get must be greater than the value of what you give up.
the benefits must outweigh the opportunity costs.
Voluntary trade
results in mutually beneficial gains because of differences in comparative advantage.
Production possibilities for two furniture producers, Edward and Samoor, are shown in the table
below:
Edward's Production Possibilities (monthly) Samoor's Production Possibilities (monthly)
Chairs
Tables
Chairs
Tables
100
0
75
0
80
10
60
15
60
20
45
30
40
30
30
45
20
40
15
60
0
50
0
75
The figure below shows their production possibilities.
Edward's opportunity cost of producing an additional table is 2 chair(s).
Opportunity cost =
𝑈𝑛𝑖𝑡𝑠 𝑡𝑜 𝑔𝑖𝑣𝑒 𝑢𝑝
𝑈𝑛𝑖𝑡𝑠 𝑡𝑜 𝑔𝑒𝑡
Opportunity cost of an additional table for Edward =
100 𝑐ℎ𝑎𝑖𝑟𝑠
50 𝑡𝑎𝑏𝑙𝑒𝑠
=2 chairs given up for every table
produced.
Comparative advantage is the ability to produce a product or service at a lower opportunity cost than
another producer.
Since Edward gives up fewer tables to produce a chair (.5) than does Samoor (1), Edward has a com
parative advantage in producing chairs.
Opportunity Costs for Edward and Samoor
Opportunity Cost for 1 Additional
Chair
Table
Edward
Give up .5 tables
Give up 2 chairs
Samoor
Give up 1 table
Give up 1 chair
Edward has comparative advantage Samoor has comparative advantage
Comparative
(lower opportunity cost) in chair
(lower opportunity cost) in table
Advantage
making.
making.
Production possibilities for two furniture producers and merchants, Edward and Samoor, are shown in
the table below. Suppose both Edward and Samoor are initially independent producers. Edward is
producing 80 chairs and 10 tables. Samoor is producing 60 tables and 15 chairs.
Edward's Production Possibilities (monthly) Samoor's Production Possibilities (monthly)
Chairs
Tables
Chairs
Tables
100
0
75
0
80
10
60
15
60
20
45
30
40
30
30
45
20
40
15
60
0
50
0
75
Edward and Samoor are considering an arrangement of specialization and trade. If they specialize
according to comparative advantage and agree on a trade of 15 chairs for 10 tables, then
Edward will produce 100 chairs, keep 85, and trade 15 to Samoor in exchange for 10 tables.
Since Edward has a comparative advantage in chairs, and Samoor has a comparative advantage in
tables, Edward will produce all chairs and no tables, thus producing 100 chairs. Samoor will produce
all tables and zero chairs, thus producing 75 tables. If they decide to specialize and trade, then
Edward will produce 100 chairs, keep 85, and trade 15 to Samoor in exchange for 10 tables.
Samoor will produce 75 tables, keep 65, and trade 10 to Edward in exchange for 15 chairs. Edward
ends up with the same amount of tables as before the trade (10), but after the trade he has more
chairs (85) than before the trade (80). Samoor ends up with the same amount of chairs as before the
trade (15), but after the trade he has more tables (65) than before the trade (60). Instead of 95 chairs
and 70 tables without specialization and trade, now the two of them produce 100 chairs and 75 tables.
Australia has the comparative advantage in oats production and Canada has the comparative
advantage in corn production.
A country has a comparative advantage in producing a product if it has a lower opportunity cost of
producing that good than the other country. For Canada, the opportunity cost of 1 bushel of
corn is (90/180) = 0.50 bushels of oats. For Australia the opportunity cost of 1 bushel of corn is
(120/120) = 1.00 bushels of oats. Australia has the comparative advantage in oats production and
Canada has the comparative advantage in corn production.
Production possibilities for two furniture producers, Edward and Samoor, are shown in the table
below:
Edward's Production
Samoor's Production
Possibilities (monthly)
Possibilities (monthly)
Chairs
Tables
Chairs
Tables
150
0
100
0
120
10
80
20
90
20
60
40
60
30
40
60
30
40
20
80
0
50
0
100
In this case, Samoor has an absolute advantage in producing tables.
The circular-flow diagram of economic life shows
governments that set rules of the game and can choose to interact in any aspect of the econo
my.
All the complexity of the Canadian economy can be reduced to three sets of
players—households,
businesses, and governments.
• In input markets, households are sellers and businesses are buyers.
• In output markets, households are buyers and businesses are sellers.
• Governments set rules of the game and can choose to interact in any aspect of economy.
The players in the circular-flow diagram of economic life include
households, businesses, and the government.
Indicate whether the following statements are positive (P) or normative (N).
The government should raise the tax on tobacco to discourage people from smoking. N
People should be encouraged to save. N
The accumulation of debt is bad for individuals but good for governments. N
Positive statements are about what is; can be evaluated as true or false by checking the facts. In
contrast, normative statements are about what you believe should be; involve value judgments; they
cannot be factually checked.
Inputs of an economy are
the productive resources used to produce products and services