Views
3 months ago

# Holt 7525-9 S15_IT

## Good X Good Y Units

Good X Good Y Units Total Marginal Units Total Marginal of X Utility Utility of Y Utility Utility 0 0 X 0 0 X 1 40 40 1 30 30 2 75 35 2 55 25 3 105 30 3 75 20 4 130 25 4 90 15 5 150 20 5 100 10 6 165 15 6 105 5 7 175 10 7 109 4 8 180 5 8 112 3 Example 8A: Assume that Consumer A has \$1 of income, and that Goods X and Y each cost \$1 per unit. Consumer A would buy one unit of Good X. The first unit of Good X yields 40 marginal utils and the first unit of Good Y yields only 30 marginal utils and they both cost \$1. Utility Maximization Rule No. 1 – Always choose the marginal unit of the good that yields the most marginal utility per price. Example 8B: Assume the same facts as Example 8A, but now Consumer A has \$2 of income. Consumer A would buy two units of Good X. This follows Utility Maximization Rule No. 1 Example 8C: Assume the same facts as Example 8A, but now Consumer A has \$10 of income. Consumer A would buy six units of Good X and four units of Good Y. This combination yields 255 total utils. No other combination of Goods X and Y yields as much total utility for \$10. With this combination of Goods X and Y, the ratio of marginal utility per price is equalized for Goods X and Y. The sixth unit of Good X and the fourth unit of Good Y both yield 15 marginal utils for \$1. Utility Maximization Rule No. 2 – Always choose the combination of goods that equalizes the ratio of marginal utility per price for all goods. Example 8D: Assume the same facts as Example 8C but now Good Y costs \$3. Consumer A would buy seven units of Good X and one unit of Good Y. This combination yields 205 total utils. No other combination of Goods X and Y yields as much total utility for \$10. The ratio of marginal utility per price is equalized for Goods X and Y. The seventh unit of Good X yields 10 marginal utils for \$1, the first unit of Good Y yields 30 marginal utils for \$3. Thus the ratio of marginal utility per price is the same (10 marginal utils per dollar) for the last units of both Good X and Good Y. Example 8E: Assume the same facts as Example 8C but now Good Y costs \$2, and Consumer A has \$13 of income. Consumer A would buy seven units of Good X and three units of Good Y. This combination yields 250 total utils. No other combination of Goods X and Y yields as much total utility for \$13. The ratio of marginal utility per price is equalized for Goods X and Y. The seventh unit of Good X yields 10 marginal utils for \$1, the third unit of Good Y yields 20 marginal utils for \$2. Thus the ratio of marginal utility per price is the same (10 marginal utils per dollar) for the last units of both Good X and Good Y. Providing Essential Goods Free of Charge The distribution of income in the U.S. economy is unequal. Persons with very low income may be unable to afford essential goods, such as food, shelter, etc. Should essential goods be distributed through markets like other goods? Should low-income persons be forced to do without essential goods because they cannot afford the market price? Should the government provide essential goods to everyone (or at least to those with low income) free of charge? Then no one would have to do without essential goods. FOR REVIEW ONLY - NOT FOR DISTRIBUTION Utility 18 - 4

Example 9: Capital City operates a grocery store where low-income persons can pick up basic food items (bread, milk, etc.) free of charge. As a result, no one in Capital City need go hungry. Government provision of essential goods free of charge would be economically inefficient. Consumers would overconsume these “free” goods, consuming up to the quantity where the marginal utility of the goods would be zero. (Remember that the price of a good is equal to the marginal utility of the last unit consumed.) Consuming a good to the point of zero marginal utility would be an inefficiently large quantity of consumption, because the marginal cost of producing the good would be greater than zero. Given the problem of scarcity, society does not want to use resources to produce goods that cost more to produce than they yield in utility. Example 10A: Cyrus, a senior citizen, suffers from heartburn. The only medicine that provides Cyrus with relief is a prescription medicine which Cyrus would be willing to buy at a price of \$20 per month. Unfortunately, the medicine costs \$200 per month. At this high price, Cyrus chooses to live with the heartburn. Then a government program is created which provides free prescription medicines to senior citizens. Cyrus can now have his heartburn medicine for free. But the cost to produce the medicine may be far greater than the benefit to Cyrus (\$20 per month). If society wishes to provide essential goods to low-income persons, providing the goods free of charge is inefficient. It would be more efficient to provide additional income to the low-income persons. Then the low-income persons could spend the income as they choose, depending on the marginal utility that they anticipate from different goods and the marginal cost of production. Example 10B: Cyrus, the senior citizen from Example 10A, is given \$200 per month. Now, he can afford the heartburn medicine. Instead, Cyrus spends the \$200 on a health club membership. This is a more efficient outcome than was reached in Example 10A, since Cyrus values the health club membership more than the heartburn medicine, and they both cost the same. Efficiency: Equating Marginal Benefit and Marginal Cost The consumption of goods yields marginal utility. The production of goods incurs marginal cost. What is the optimal (ideal, most efficient) quantity of a good to produce and consume? If the marginal unit of a good will result in more marginal utility than marginal cost, then society will receive a net benefit from producing the marginal unit. It is an efficient use of limited resources to continue producing more units of the good as long as the marginal utility exceeds the marginal cost. If the marginal unit of a good will result in more marginal cost than marginal utility, then society will suffer a net loss from producing the marginal unit. It is an inefficient use of limited resources to continue producing more units when the marginal cost exceeds the marginal utility. As more units of a good are produced and consumed, the marginal utility of additional units will decrease (due to the law of diminishing marginal utility, discussed earlier in this chapter) and the marginal cost of additional units will increase (due to the law of diminishing marginal returns, discussed in Chapter 20). When the marginal utility and the marginal cost are equal, this is the optimal (ideal, most efficient) quantity of the good to produce. Speaking more generally, any activity results in marginal benefits and marginal costs. An activity should be continued as long as the marginal benefit of the activity exceeds the marginal cost. The optimal (ideal, most efficient) level of the activity occurs where marginal benefit and marginal cost are equal. Example 11: The table on the next page applies to some activity (maybe studying for a test). As more units of the activity are produced, the marginal benefit of the activity decreases and the marginal cost of the activity increases. As long as the marginal benefit exceeds the marginal cost, the activity yields a positive marginal net benefit (marginal benefit minus marginal cost) and an increase in the total net benefit. The optimal level of the activity (where total net benefit is maximized) occurs where the marginal benefit of the activity and the marginal cost of the activity are equal (6 units). If the marginal cost of another unit of the activity exceeds the marginal benefit (units 7 and 8), the total net benefit is reduced by continuing the activity. FOR REVIEW ONLY - NOT FOR DISTRIBUTION 18 - 5 Utility

• Page 1 and 2:

PRINCIPLES OF ECONOMICS JEFF HOLT S

• Page 3 and 4:

Principles of Economics, 6th Editio

• Page 5 and 6:

16. Study Guide for Chapter 7 17. C

• Page 7 and 8:

11. Appendix: Book Review - “The

• Page 9 and 10:

20. Appendix: The NCAA Cartel 21. S

• Page 11 and 12:

Introduction: A Brief History of U.

• Page 13 and 14:

In the twentieth century, per capit

• Page 15 and 16:

Appendix: The 35 Largest National E

• Page 17 and 18:

Multiple Choice: ___ 1. The Jamesto

• Page 19 and 20:

2. Describe the economic cost of th

• Page 21 and 22:

Chapter 1 Scarcity and Choices The

• Page 23 and 24:

Example 5B: At the end of 1982, the

• Page 25 and 26:

Example 11: When Cindy quits her jo

• Page 27 and 28:

consequences may result in failure

• Page 29 and 30:

An upward sloping curve (as in Exam

• Page 31 and 32:

In making decisions, humans tend to

• Page 33 and 34:

5. ______________________ _________

• Page 35 and 36:

___ 13. If the value of one variabl

• Page 37 and 38:

Y Point X Y A 0 1 B 3 3 C 6 5 D 9 7

• Page 39 and 40:

Chapter 2 Trade and Economic System

• Page 41 and 42:

Example 4B: The following quantitie

• Page 43 and 44:

1. An increase in the quantity of r

• Page 45 and 46:

3. For whom to produce? This is det

• Page 47 and 48:

The graph below illustrates the shi

• Page 49 and 50:

The two primary economic systems ar

• Page 51 and 52:

___ 12. The capitalist vision sees

• Page 53 and 54:

___ 25. According to the book “Ca

• Page 55 and 56:

Chapter 3 Demand, Supply, and Equil

• Page 57 and 58:

. For inferior goods, income and de

• Page 59 and 60:

The same information can be placed

• Page 61 and 62:

Not only does a free market elimina

• Page 63 and 64:

\$7 - 6 - 5 - S 3 S1 S 2 Price 4 - 3

• Page 65 and 66:

Example 17: The graph below illustr

• Page 67 and 68:

Questions for Chapter 3 Fill-in-the

• Page 69 and 70:

___ 12. Assuming a market originall

• Page 71 and 72:

\$8 - 7 - 6 - 5 - Price 4 - 3 - 2 -

• Page 73 and 74:

Chapter 4 Inflation and Unemploymen

• Page 75 and 76:

Computing the Rate of Inflation The

• Page 77 and 78:

Full Employment Though unemployment

• Page 79 and 80:

3. Cyclical unemployment - due to d

• Page 81 and 82:

During the Great Depression, the ec

• Page 83 and 84:

Appendix: Think Like an Economist -

• Page 85 and 86:

Answer questions 8. and 9. based on

• Page 87 and 88:

___ 25. The extension of unemployme

• Page 89 and 90:

Chapter 5 Measuring Total Output: G

• Page 91 and 92:

5. Leisure. Leisure time is by defi

• Page 93 and 94:

The U.S. is a high per capita GDP c

• Page 95 and 96:

Example 17: In “An International

• Page 97 and 98:

The simple circular flow diagram be

• Page 99 and 100:

___ 3. Which of the following would

• Page 101 and 102:

2. Explain what nonproduction trans

• Page 103 and 104:

Chapter 6 The Aggregate Market The

• Page 105 and 106:

Example 2C: Assume the same facts a

• Page 107 and 108:

Example 5B: The price of crude oil

• Page 109 and 110:

• Page 111 and 112:

Appendix: Why the Aggregate Demand

• Page 113 and 114:

___ 3. DEF Company can invest in ne

• Page 115 and 116:

2. List and explain the two factors

• Page 117 and 118:

Chapter 7 Classical Economic Theory

• Page 119 and 120:

Notice that the investment demand c

• Page 121 and 122:

Long-Run Equilibrium If Real GDP is

• Page 123 and 124:

Example 6B: When the economy is in

• Page 125 and 126:

Laissez-faire If the economy is sel

• Page 127 and 128:

___ 5. According to Say’s Law: a.

• Page 129 and 130:

3. On the graph below, draw an aggr

• Page 131 and 132:

Chapter 8 Keynesian Economic Theory

• Page 133 and 134:

Example 2B: The graph below illustr

• Page 135 and 136:

Example 5: Assume that the table be

• Page 137 and 138:

Notice on the graph on the previous

• Page 139 and 140:

According to Keynesian theory, a ch

• Page 141 and 142:

“The General Theory” also inclu

• Page 143 and 144:

___ 8. If the consumption function

• Page 145 and 146:

3. If the MPC is .667, and investme

• Page 147 and 148:

Chapter 9 Fiscal Policy The basic e

• Page 149 and 150:

Keynesian Fiscal Policy Theory and

• Page 151 and 152:

Example 5A: The federal government

• Page 153 and 154:

The Laffer Curve What will happen t

• Page 155 and 156:

Appendix: The Importance of Incenti

• Page 157 and 158:

___ 4. A decrease in government exp

• Page 159 and 160:

2. Explain what automatic stabilize

• Page 161 and 162:

Chapter 10 Money, Money Creation, a

• Page 163 and 164:

Example 4B: The castaways on Gillig

• Page 165 and 166:

Looking at the balance sheet below,

• Page 167 and 168:

Demand-side One-shot Inflation Exam

• Page 169 and 170:

4. Inflation increases uncertainty

• Page 171 and 172:

life; it came into existence not by

• Page 173 and 174:

calculated by using the potential d

• Page 175 and 176:

___ 12. If the required-reserve rat

• Page 177 and 178:

4. Referring to the balance sheet f

• Page 179 and 180:

Chapter 11 The Federal Reserve Syst

• Page 181 and 182:

5. After Bank X sells the \$300,000

• Page 183 and 184:

Low Mortgage Interest Rates Mortgag

• Page 185 and 186:

Relaxed Standards for Mortgage Loan

• Page 187 and 188:

The Bursting of the Housing Bubble

• Page 189 and 190:

On February 17, 2009, the federal g

• Page 191 and 192:

Fed policies caused short-term inte

• Page 193 and 194:

___ 10. The Fed’s most important

• Page 195 and 196:

___ 25. In response to the recessio

• Page 197 and 198:

Chapter 12 Monetary Policy The basi

• Page 199 and 200:

2. A change in aggregate demand (AD

• Page 201 and 202:

Monetarist Transmission Mechanism C

• Page 203 and 204:

3. Borrowers do not have to seek ou

• Page 205 and 206:

Appendix: Book Review - “The Age

• Page 207 and 208:

Questions for Chapter 12 Fill-in-th

• Page 209 and 210:

___ 16. The primary source of incom

• Page 211 and 212:

7. According to Alan Greenspan, wha

• Page 213 and 214:

Chapter 13 Taxes, Deficits, and the

• Page 215 and 216:

Example 5: In 2015, Taxpayer A had

• Page 217 and 218:

of \$5 and a quantity of 10 units. T

• Page 219 and 220:

The complexity of the tax law also

• Page 221 and 222:

the current government spending and

• Page 223 and 224:

cut of 1964. The top rate was lower

• Page 225 and 226:

___ 6. Federal excise taxes: a. are

• Page 227 and 228:

3. How would eliminating the loopho

• Page 229 and 230:

Chapter 14 Economic Growth The basi

• Page 231 and 232:

2. Labor. Labor can contribute to e

• Page 233 and 234:

• Page 235 and 236:

An improvement in technology (e.g.

• Page 237 and 238:

The table below shows the economic

• Page 239 and 240:

will increase both Real GDP and per

• Page 241 and 242:

___ 8. Which of the following is co

• Page 243 and 244:

___ 26. The opinion that economic g

• Page 245 and 246:

Chapter 15 Less Developed Countries

• Page 247 and 248:

Example 8: Countries A, B, C, and D

• Page 249 and 250:

Obstacles to Economic Development f

• Page 251 and 252: c. Restrictions on international tr
• Page 253 and 254: Appendix: Book Review - “The Powe
• Page 255 and 256: Example 25: In Brazil, about half t
• Page 257 and 258: Study Guide for Chapter 15 Chapter
• Page 259 and 260: ___ 13. Among the counterproductive
• Page 261 and 262: 4. List four ways that governments
• Page 263 and 264: Chapter 16 International Trade The
• Page 265 and 266: Other Benefits of Free Internationa
• Page 267 and 268: Example 6: The graph below illustra
• Page 269 and 270: competitive disadvantage. But dumpi
• Page 271 and 272: is only 25% as productive as before
• Page 273 and 274: Smith was skeptical of government a
• Page 275 and 276: ___ 4. For Country X, what is the o
• Page 277 and 278: ___ 18. Frédéric Bastiat’s “P
• Page 279 and 280: 4. On the graph below: (1) What is
• Page 281 and 282: Chapter 17 Elasticity We are often
• Page 283 and 284: Example 4A: What is price elasticit
• Page 285 and 286: Example 5A: Gertie’s Gas and Go i
• Page 287 and 288: Example 10A: When the price of Good
• Page 289 and 290: Example 13B: On the graph below, su
• Page 291 and 292: \$7 - 6 - 5 - Price 4 - 3 - 2 - 1 -
• Page 293 and 294: In the long run, would the deadweig
• Page 295 and 296: ___ 7. The factors that determine w
• Page 297 and 298: 3. a. Which price (or prices) from
• Page 299 and 300: Chapter 18 Utility The basic econom
• Page 301: Nonetheless, society generally assu
• Page 305 and 306: Marginal rate of substitution - the
• Page 307 and 308: The diamond-water paradox is the ob
• Page 309 and 310: Complete the table below to answer
• Page 311 and 312: 4. The graph below shows indifferen
• Page 313 and 314: Chapter 19 The Firm The basic econo
• Page 315 and 316: than contributing to team productio
• Page 317 and 318: 1. Difficulty in raising large amou
• Page 319 and 320: Corporations also use self-financin
• Page 321 and 322: Example 24: A blacksmith who produc
• Page 323 and 324: For financing needs, proprietorship
• Page 325 and 326: ___ 13. Corporations: a. are comple
• Page 327 and 328: 5. List two things that the absence
• Page 329 and 330: Chapter 20 Production and Costs The
• Page 331 and 332: In Example 5B, Birdwell finds that
• Page 333 and 334: variable cost initially decreases,
• Page 335 and 336: Quantity TC MC AFC AVC ATC 0 240 X
• Page 337 and 338: If the scale of operation is increa
• Page 339 and 340: average total cost. Average fixed c
• Page 341 and 342: ___ 11. Concerning the cost curves:
• Page 343 and 344: 5. Complete the following cost tabl
• Page 345 and 346: Chapter 21 Perfect Competition The
• Page 347 and 348: Even though a perfect competitor ca
• Page 349 and 350: Example 6C: This example builds on
• Page 351 and 352: At what price will there be neither
• Page 353 and 354:

Appendix: Perfect Competition in th

• Page 355 and 356:

Multiple Choice: ___ 1. A perfect c

• Page 357 and 358:

___ 17. Perfect competition: a. req

• Page 359 and 360:

• Page 361 and 362:

Chapter 22 Monopoly Of the four mar

• Page 363 and 364:

3. Exclusive ownership of an essent

• Page 365 and 366:

maximizing quantity (4 units) creat

• Page 367 and 368:

\$22 - 20 - 18 - 16 - 14 - Deadweigh

• Page 369 and 370:

2. Negotiating, beginning at a high

• Page 371 and 372:

Legal barriers are created by gover

• Page 373 and 374:

___ 8. The slope of the demand curv

• Page 375 and 376:

Price Quantity 3. List some of the

• Page 377 and 378:

Chapter 23 Monopolistic Competition

• Page 379 and 380:

For Percomp (the perfect competitor

• Page 381 and 382:

Example 7A: The graph below represe

• Page 383 and 384:

Example 9: The Organization of the

• Page 385 and 386:

Example 12 illustrates the dilemma

• Page 387 and 388:

its current price and quantity. The

• Page 389 and 390:

___ 14. Game theory: a. is a method

• Page 391 and 392:

• Page 393 and 394:

Chapter 24 Factor Markets The basic

• Page 395 and 396:

\$ \$240 - 200 - 160 - 120 - 80 - 40

• Page 397 and 398:

Since producers will attempt to equ

• Page 399 and 400:

2. Differences in nonmoney aspects

• Page 401 and 402:

were his strikeouts, walks, and hom

• Page 403 and 404:

___ 3. To maximize profits, a produ

• Page 405 and 406:

___ 19. According to the book, “M

• Page 407 and 408:

Multiple Choice: 1. a. 8. c. 15. d.

• Page 409 and 410:

Chapter 25 Labor Unions The primary

• Page 411 and 412:

The elasticity of demand for union

• Page 413 and 414:

Example 4A: Assume that the graph b

• Page 415 and 416:

Notice from the graph in Example 6

• Page 417 and 418:

Wage Factory A Quantity of Labor S

• Page 419 and 420:

As a cartel, a labor union faces a

• Page 421 and 422:

___ 10. For a monopsony: a. there i

• Page 423 and 424:

3. The graph below represents a lab

• Page 425 and 426:

Chapter 26 Interest, Present Value,

• Page 427 and 428:

An increase in expected rates of re

• Page 429 and 430:

An asset is valuable because we exp

• Page 431 and 432:

Example 13B: General Ordnance prove

• Page 433 and 434:

Appendix: Present Value Table One f

• Page 435 and 436:

___ 4. An increase in expected rate

• Page 437 and 438:

Problems: 1. List and explain the t

• Page 439 and 440:

Chapter 27 Market Failure The basic

• Page 441 and 442:

External Benefit If a market genera

• Page 443 and 444:

Example 2: To encourage the consump

• Page 445 and 446:

\$100 - 90 - 80 - MSC 70 - \$ 60 - 50

• Page 447 and 448:

A common good is nonexcludable. Non

• Page 449 and 450:

Study Guide for Chapter 27 Chapter

• Page 451 and 452:

___ 5. What government policy would

• Page 453 and 454:

4. Based on the information on the

• Page 455 and 456:

Chapter 28 Public Choice and Govern

• Page 457 and 458:

Candidates and the Median Voter Mod

• Page 459 and 460:

Example 8: According to State and F

• Page 461 and 462:

Example 10: When Elvis Presley was

• Page 463 and 464:

4. Pessimistic bias. This is the te

• Page 465 and 466:

___ 5. An elected official will: a.

• Page 467 and 468:

2. If a certain policy will yield s

• Page 469 and 470:

Chapter 29 Government Regulation of

• Page 471 and 472:

underproduction is the amount that

• Page 473 and 474:

• Page 475 and 476:

market. They may agree with their c

• Page 477 and 478:

Questions for Chapter 29 Fill-in-th

• Page 479 and 480:

___ 10. The public interest theory

• Page 481 and 482:

4. List the four types of costs imp

• Page 483 and 484:

Chapter 30 Agriculture and Health C

• Page 485 and 486:

weather may cause bumper crops. Bad

• Page 487 and 488:

Security and Rural Investment Act o

• Page 489 and 490:

Example 12: From 1960 to 2013, the

• Page 491 and 492:

1. NHI would provide universal heal

• Page 493 and 494:

d. Insurance providers are not allo

• Page 495 and 496:

Study Guide for Chapter 30 Chapter

• Page 497 and 498:

Answer questions 7. through 10. by

• Page 499 and 500:

___ 21. If there were no individual

• Page 501 and 502:

Chapter 31 Income Distribution and

• Page 503 and 504:

Income is more equally distributed

• Page 505 and 506:

over a typical career is the accumu

• Page 507 and 508:

Ideal Income Redistribution The ide

• Page 509 and 510:

Poverty - a family whose income fal

• Page 511 and 512:

Appendix: Income Inequality around

• Page 513 and 514:

How is this story an analogy for th

• Page 515 and 516:

___ 2. In 2013, the Lowest Income 6

• Page 517 and 518:

Problems: 1. Explain the two primar

• Page 519 and 520:

Absolute advantage - when one natio

• Page 521 and 522:

Fiat money - money by government de

• Page 523 and 524:

Nonrivalrous good - a good for whic

• Page 525 and 526:

• Page 527 and 528:

“Company town”, 25-6 Comparativ

• Page 529 and 530:

Eli Lilly and Company, 22-1 Emergen

• Page 531 and 532:

Houston, Texas, 15-10 Human capital

• Page 533 and 534:

Market, 3-1, 3-8-9 Market basket, 4

• Page 535 and 536:

Political bias, 9-4, 12-7 Political

• Page 537 and 538:

Short run production, 20-2-3 Short-

• Page 539 and 540:

Upturns, 9-4 USDA, 27-9, 30-1-2, 30

Chapter 8
Chapter 5: Supply
RSPS_5th_Edition
BEACONOMICS - Los Angeles Chamber of Commerce
ECONOMIC REPORT OF THE PRESIDENT
ECONOMIC REPORT OF THE PRESIDENT
ECONOMIC REPORT OF THE PRESIDENT
Economic Report of the President 1994 - The American Presidency ...
The Instant Economist By John Charles Pool Ross M ... - Paolo Cirio
Central Banks Do?
Orange Unified School District Budget Update December 9, 2010
IAS
Rich States, Poor States: ALEC-Laffer State Economic Competitive ...
report
The-Impact-of-Local-Right-to-Work-Zones
Eco Today - Mar10:ET Master Page 2007 - ASKnLearn
1fAWAwx
FACTSHEET_Spain_2015_web
3 - Inetteacher.com
E3uVVQ
The Failure of the "New Economics" - Ludwig von Mises Institute