correlation Tuesday January 13 2015 3 38 PM Test Important Question Economics claim that when the price of something rises ceteris paribus the quantity demanded decreases The phrase ceteris parabus inn this context means other things being equal or other things remaining constant Correlation Every time I wear this stuff it snows Winter clothes Snow Question if this correlation represents cause and effect Reverse causation omitted variables spurious correlation what does that mean say Cause and effect it s snowing so I ll wear my snow jacket A causes B Reverse causation if he wears the clothes it has to snow B causes A Omitted variables because it s cold outside mom says put on your jacket Spurious correlation there is no cause and no effect coincidence We observe that in communities of the same size the community with more fire trucks also has more fires Which of the following explanations best fits the definition of cause and effect Question More fire trucks in a community cause the community to have more fires New Section 1 Page 1 Scarcity and Marginal Analysis Tuesday January 13 2015 4 09 PM question important test 1 2 Liver Article What were the consequences of signa insurance company denying the girl her liver transplant The girl died What would be the consequences if she got the consequences If she got the liver maybe someone else would of died Conclusion Scarcity Opportunity cause either she died or someone else would Cost will go on the person that did not get the liver AKA the girl In 2011 2373 people died in automobile accidents in Florida What is the optimal number of people to kill on Florida s roads each year Scarcity does not arise simply from the fact that resources are limited in amount Seawater is not scares because there is a lot more water around then what people want Scares resource Oil Not scares resource oxygen more air then what people want Clean air is scares in certain areas at certain times scarcity Results when the amount of a resource available is insufficient to satisfy society s wants Scarcity needs choices and there will always be consequences good or bad Food choices The type of food Water choices The amount of water We make Marginal decision not total decision Only choices kidney transplant Kidney dialysis 1 5 people choose to die because unpleasant feeling Choice entail cost Opportunity cost is the value that you give up in order to use something else that you choose to do In Africa 29 have AIDS but may only live for 5 years In Africa 50 have malaria but may live for 60 years opportunity cost scarcity Which of the following statements is are true 1 A resource is scarce if the amount of it is limited 2 There are some goods called necessities about which people have no choices 3 The opportunity cost of something is the highest valued alternative foregone Number 3 is correct New Section 1 Page 2 is this a valid use of the economic concept of cost that is opportunity cost Why or why not The cost of the George strait boxed set of compact discs at circuit city is 36 95 A B C Valid 36 95 is the opportunity cost NOT VALID 36 95 is not the opportunity cost Whether 36 95 is or is not the opportunity cost cannot be determined from the information provided B is the correct answer Money is not the opportunity cost of everything it is your time that is the opportunity cost or what you could of bought with 36 95 Is this a valid use of the economic concept of cost that is opportunity cost Why or why not There is no cost to duke university students for tickets to home basketball games Many students camp out of for several days to ensure they are close enough to the front of the line to receive one of the limited number of tickets distributed to students A B C Valid there is no cost Not valid there is a cost Where or not there is a cost cannot be determined from the information provided B is the correct answer The united states provides about 79M Tons of soybeans on 78M acres of land at an estimated average cost of 345 per acre Brazil produces about 67 5m tons on 57m acres At an estimated average cost of 402 per acre Argentina produces about 52m Tons in 47m acre at an estimate average cost of 377 per acre If we were want to increase soybeans production at the lowest cost in which country should we expand production a b c d United states because Brazil because Argentina because Not enough information you need to know D is the correct answer Water and diamonds are both scarce Relative scarcity of diamonds are much higher than water Marginal analysis is what we use in order to make general decisions in our daily life Marginal decision choose to go to college or grad school etc compared to other friends that choose to drop out or start work Baseball players 750 1million 2 billion 467million dollars a year k 12 teachers 6 2 million Average salary 40 000 Total income 2 billion 80 million dollars a year MC 100 1 MB 105 Mc 100 should use more fertilizer New Section 1 Page 3 1 2 3 MB 105 Mc 100 should use more fertilizer MB 95 MC 100 Should not increase his use of fertilizer MB 100 MC 100 Should stay here because it is optimal Why do economists insist on marginal thinking 1 2 3 4 It leads to correct decisions It is descriptive of most real world decision processes It makes economics more difficult Total benefit is maximized 1 2 3 are correct According to the basic economic decision rule the economically efficient or optimal amount of any activity is the amount at which Which of the following is true of the optimal or economically efficient amount of a good or activity 1 2 3 4 The difference between total benefit and total cost is maximized Net benefit is maximized Marginal benefit equals marginal cost The additional benefit from a small change in the amount of the activity equals the additional cost 1 2 3 4 are all correct 1 2 3 4 mean the same thing If you were tailgating someone and you hit the brakes and your break begins to fail Will you do it again most likely not People respond to incentives Incentives matter When the marginal benefit increases they do more When the marginal cost increase they do less AIDS in the 1900s were a death sentence 1990s they made products to stop you from dying The death did go down but the cases increased a lot because people can now survive I Don t care if you tell on me I m already grounded Scarcity Choice Opportunity cost Marginal analysis Incentives New Section 1 Page 4 Production possibilities and comparative advantage Thursday
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