ECON 102 Chapter 01

What is the great economic problem?

Answer: TO SATISFY AS MANY WANTS AS POSSIBLE WITH OUR LIMITED RESOURCES.

Which scenario would least likely change an individual\'s behavior?

Answer: IN AN EFFORT TO MAKE PEOPLE EAT HEALTHIER, THE CITY OF BAKERSVILLE TELLS ITS RESIDENTS TO EAT WHEAT BREAD INSTEAD OF WHITE BREAD.

Daniel is a baker who has decided to create his own brand of chain restaurants, Short and Sweet. He negotiates with three suppliers for weeks and ultimately signs contracts with these suppliers. Francis, who owns a new sugar plantation, agrees to sell Daniel freshly refined sugar on the condition that Daniel helps him advertise his brand of sugar. Diana runs an orchard and provides Daniel with fruit. She enters into the partnership knowing that she can dramatically increase her profits if she can sell fruit to Daniel. Lastly, Ryan, who owns a mill, decides to purchase a new piece of machinery so that he can sell Daniel flour at a lower price than his competitor. The end result of Daniel\'s interactions with his suppliers is that folks in his neighborhood have a chance to buy delicious baked goods at reasonable prices. Daniel\'s situation with his suppliers is an example of

Answer: THE INVISIBLE HAND

Which demonstrates a scenario with no opportunity cost?

Answer: ALL OF THESE SCENARIOS HAVE AN OPPORTUNITY COST.

Label each scenario by deciding whether the opportunity cost has increased or decreased. a. Emily is deciding between her two favorite restaurants. One makes Indian food, and the other makes Chinese food. The Indian restaurant has just raised its prices. The opportunity cost of Chinese food has b. Jacob has a bagel or a muffin for breakfast. Muffins are on sale, so they cost $1 less than usual. The opportunity cost of eating a bagel has c. Taylor has to take time off work to study. Since her wage has increased from $10 /hour to $15 /hour, the opportunity cost of studying has d. Justin decides to take the bus to school instead of driving to school. The price of gasoline has just decreased. The opportunity cost of taking the bus has

Answer: a. DECREASE b. INCREASE c. INCREASE d. INCREASE

In economics, what is meant by \"optimal decisions are made at the margin?\"

Answer: THE IDEA OF THE MARGIN IS RELATED TO MAKING DECISIONS WHILE THINKING ABOUT THE BENEFITS AND COSTS OF SMALL BEHAVIORAL CHANGES.

Kanye, Eddie, Geddy, and Neil are trying to form a band. They each have some basic skills on most instruments, so their current plan is for each of them to rotate among vocals, guitar, bass, and drums. After a year of practice and rehearsals, the band still sounds awful. Kanye cannot keep a steady beat when on bass or drums, Geddy sounds terrible on everything except the bass, nobody except Eddie can remember all the chords on the guitar, and even Neil\'s own mother thinks his singing sounds like a dying cow. At their current rate, they expect it will be several years before they are good enough to land their first paid performance. None of them have enough money saved up to last that long. They all know you are taking economics and ask your advice. What would you say to them?

Answer: HAVE EACH MEMBER SPECIALIZE IN THE ROLE THAT THEY ARE BEST IN TO TAKE ADVANTAGE OF BENEFITS FROM SPECIALIZATION.