The Core Principles of Economics – Ivan has inherited his grandmother’s
Irvine Valley College The Core Principles of Economics Discussion
1. Ivan has inherited his grandmother’s 1963 Chevrolet Corvette, which he values at $45,000. He decides that he might be willing to sell it so he posts it on Craigslist for $55,000. Samantha is interested and willing to pay up to $72,000. Would Ivan and Samantha want to voluntarily engage in trade? How much economic surplus is created for both of them as a result of this exchange? What is the total economic surplus?
4. Suppose you have midterms in economics and astron- omy tomorrow, and you only have four hours left to study. The accompanying table provides the combinations of time spent studying economics and astronomy and your expected exam scores.
Hours spent studying economics Economics exam score Hours spent studying astronomy Astronomy exam score
0 60 0 70 1 80 1 83 2 90 2 87 3 95 3 90 4 98 4 92
a. Draw a production possibilities frontier to illustrate your study options. What is the opportunity cost, in terms of your grades, of studying one extra hour for economics or one extra hour for astronomy?
b. If your goal is to maximize your combined exam scores, how many hours should you spend studying each subject?
c. Your laptop dies and refuses to start up. All your notes and class materials are saved on its hard drive. How do your production possibilities change? Illustrate in your graph from part (a).
5. Your niece is deciding whether or not to open a lemonade stand. She expects to sell 20 cups of lemonade for $1 per ???. She already made a sign that cost her $10 and will have $15 worth of additional costs for cups and lemonade mix if she decides to open the stand. If your niece decides to open the lemonade stand, how much profit will she earn? Should she open the lemonade stand? What kind of cost is the $10 spent on the lemonade stand sign?
7. Neal is a coffee drinker. At the local coffee shop, the price of a cup of coffee is $3. Neal’s total benefits from drink- ing coffee is provided in the accompanying table. What is Neal’s marginal benefit of consuming each cup of coffee? How many cups should he consume each day?
Quantity of coffee Total benefits 1 $8 2 $14 3 $18 4 $20 5 $21
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