Exam 1: Economics: Foundations and Models

You explain to your friend Haslina, who runs a catering service called "Meals in a Zip", about an economic theory which asserts that consumers will purchase less of a product at higher prices than they will at lower prices. She contends that the theory is incorrect because over the past two years she has raised the price of her catered meals and yet has seen a brisk increase in sales. How would you respond to Haslina?

Suppose a doctor can earn an additional $25,000 in revenue per year by keeping her office open on Sundays. At what additional cost would keeping the office open on Sundays not be considered economically rational?

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. Had the firm not produced and sold the last 3,000 cell phones, would its profit be higher or lower, and if so by how much?

What is the difference between an invention and an innovation?

The decision about what goods and services will be produced made in a centrally-planned economy is made by

Scenario 1-4 Suppose a cigar manufacturer currently sells 1,500 cigars per week and makes a profit of $3,000 per week. The plant foreman observes, "Although the last 500 cell cigars we produced and sold increased our revenue by $7,500 and our costs by $7,000, we are only making an overall profit of $3,000 per week so I think we need to cut back on production." -Refer to Scenario 1-4. Had the firm not produced and sold the last 500 cigars, would its profit be higher or lower, and if so by how much?

An economic ________ is a simplified version of some aspect of economic life used to analyze an economic issue.

Economic models

Table 1-1 Lydia runs a small nail salon in the town of New Hope. She is debating whether she should extend her hours of operation. Lydia figures that her sales revenue will depend on the number of hours the nail salon is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of $10 per hour. -Refer to Table 1-1. Using marginal analysis, how many hours should Lydia extend her nail salon's hours of operations?

Which of the following is a macroeconomics question?

Which of the following statements about economic resources is false?

The term "market" refers to trading arrangements by which buyers and sellers come together.

Scenario 1-3 Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes, "Although the last 400 t-shirts we produced and sold increased our revenue by $4,000 and our costs by $4,800, we are still making an overall profit of $10,000 per week so I think we're on the right track. We are producing the optimal number of t-shirts." -Refer to Scenario 1-3. Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 400 t-shirts?

Which of the following is an example of a "how much" decision?

Human capital refers to

There is often a trade-off between

In economics, activities done for others, such as providing house cleaning or dental work, are referred to as

Which of the following is an example of an activity undertaken by an entrepreneur?

Which of the following statements about economic resources is true?

In a market economy, those who are willing and able to buy what is produced