Exam 1: Economics: Foundations and Models

Table 1-2 Extra Hours Open Total Revenue (dollars) 1 \ 25 2 45 3 70 4 90 5 105 6 110 Thuy Anh runs a small flower shop in the town of Florabunda. She is debating whether she should extend her hours of operation. Thuy Anh figures that her sales revenue will depend on the number of extra hours the flower shop is open as shown in the table above. She would have to hire a worker for those extra hours at a wage rate of $16 per hour. -Refer to Table 1-2.What is Thuy Anh's marginal benefit if she decides to stay open for an extra three hours instead of two hours?

Marginal benefit refers to the additional benefit that your activity provides to you.

Optimal decisions are made at the point where marginal cost equals zero.

Allison's Auto Art is a company that applies pinstripes to vehicles.Allison's cost for a basic 1-color pinstriping job is $35,and she charges $95 for this service.For a total price of $175,Allison will apply a fancier 3-color pinstripe application to an automobile,a service that adds an additional $40 to the total cost of the package.What is Allison's marginal benefit if she sells a basic 1-color job?

Cassie's Quilts alters,reconstructs,and restores heirloom quilts.Cassie has just spent $800 purchasing,cleaning,and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished.After having spent $800,Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task.Alternatively,she can sell the quilt "as is" now for $900.What is the marginal cost of completing the task?

"The unemployment rate is too high" is an example of a positive economic statement.

Which of the following is counted as "capital" in economics?

Fiona shares an office with her ex-husband.Her share of the rent and utilities is $625 per month.She is considering moving to a home office which she will not have to share with anyone.The home office will not cost her anything as far as extra rent or utilities.Recently,you ran into Fiona at the gym and she tells you that she has moved into her home office.Fiona is as rational as any other person.As an economics major,you rightly conclude that

What is opportunity cost?

Which of the following is a microeconomic question?

Normative analysis is concerned with "what ought to be," while positive analysis is concerned with "what is."

Table 1-4 Hours Open Total Revenue (dollars) 1 \ 35 2 60 3 80 4 92 5 100 6 105 Eva runs a small bakery in the village of Roggerli. She is debating whether she should extend her hours of operation. Eva figures that her sales revenue will depend on the number of additional hours the bakery is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of $12 per hour. -Refer to Table 1-4.What is Eva's marginal benefit if she decides to stay open for two hours instead of one hour?

Article Summary In a January, 2017 report, the World Economic Forum stated that the growing income gap has become one of the biggest threats to the global economy and cannot be remedied solely by higher economic growth. Although income inequality has fallen over the past 30 years on a global level, in high-income countries like the United States and the United Kingdom, the top 1% of income earners have benefitted disproportionately from economic growth. This has led a growing belief that the traditional model for economic growth does not result in a population-wide increase in income. According to the report, "The growing mood of anti-establishment populism suggests we may have passed the stage where [reviving economic growth] alone would remedy fractures in society: reforming market capitalism must also be added to the agenda." Source: Lauren Gensler, "Rising Income Inequality Is Throwing The Future Of Capitalism Into Question, Says World Economic Forum," Forbes, January 11, 2017. -Refer to the Article Summary.The article discusses income inequality and how economic growth alone is no longer resulting in a more equitable distribution of income.What is meant by a more equitable distribution of income?

Which of the following is motivated by an equity concern?

The machines that workers have to work with are considered

Which of the following statements is true about revenue?

Table 1-3 Extra Hour: Open Total Revenue (dollars) 1 \ 70 2 120 3 160 4 184 5 200 6 210 Santiago runs a comic book store in the town of East Arbor. He is debating whether he should extend his hours of operation. Santiago figures that his sales revenue will depend on the number of extra hours the store is open as shown in the table above. He would have to hire a worker for those extra hours at a wage rate of $18 per hour. -Refer to Table 1-3.What is Santiago's marginal cost if he decides to stay open for an extra two hours instead of one hour?

What is meant by the statement that "optimal decisions are made at the margin"?

Scenario 1-1 Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and makes a profit of $5,000 per week. A manager at the plant observes, "Although the last 3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs by $6,700, we are still making an overall profit of $5,000 per week so I think we're on the right track. We are producing the optimal number of cell phones." -Refer to Scenario 1-1.Using marginal analysis terminology,what is another economic term for the incremental revenue received from the sale of the last 3,000 cell phones?

"The distribution of income should be determined by the government" is an example of a normative economic statement.