Exam 2: The Key Principles of Economics

You rent a DVD of The Dark Knight Rises. The rental is for seven days and you watch the movie on the first day. You tell a friend about the film and your friend asks to come over and watch the movie with you before it is due back. What is your opportunity cost if you decide to watch the movie a second time instead of going to a football game?

Recall the Application about running a lawn-cutting business using solar-powered equipment to answer the following question(s). -The time and invested funds involved in starting a lawn-cutting business address the economic concept of

Table 2.1 -Kaitlyn and Larissa have formed a dog bathing and grooming business business. The number of dogs they can bathe or groom in any given day is depicted in Table 2.1. The opportunity cost of grooming the third dog in a day is bathing ________ dog(s).

Table 2.2 -Krystal runs a nail salon and needs to decide how many hours to stay open. Table 2.2 illustrates her marginal costs of staying open for each additional hour. Suppose that we observe Krystal staying open 5 hours and her marginal benefit of staying open per hour is $18. If she is following the marginal principle, Krystal should

Table 2.3 -Refer to Table 2.3. The principle of diminishing returns first occurs when how many workers are hired?

The principle of opportunity cost

What is the opportunity cost of your college degree?

Table 2.3 -Refer to Table 2.3. What can be observed about the given resources?

If an economy is represented by a point along its production possibilities curve,

Recall the Application about running a lawn-cutting business using solar-powered equipment to answer the following question(s). -If you have $10,000 to start a lawn-cutting business, the interest rate is 4 percent, your cost of equipment is $3,000, and the earnings you sacrifice from working at another job are $32,000, your yearly cost of doing business would be

-Joe runs a business and needs to decide how many hours to stay open. Figure 2.2 illustrates his marginal benefit of staying open for each additional hour. Suppose that we observe Joe staying open 5 hours per day. If he is following the marginal principle, what must his marginal cost per hour be?

Explain the real-nominal principle.

Suppose that you own a house. What is the opportunity cost of living in the house?

The principle that individuals and firms pick the activity level where the incremental benefit of that activity equals the incremental cost of that activity is known as the

The value of money or income in terms of the quantity of goods the money can buy is called its

The face value of money or income is called its ________ value.

Table 2.4 -Refer to Table 2.4. What can be observed about the given resources?

-Joe runs a business and needs to decide how many hours to stay open. Figure 2.2 illustrates his marginal benefit of staying open for each additional hour. Suppose that we observe Joe staying open 3 hours per day. If he is following the marginal principle, what must his marginal cost per hour be?

What is a marginal cost?

If your salary increases at a lower rate than prices are increasing, what would happen to your buying power?