ATF FUNDAMENTALS MICRO CERTIFICATION
COMPLETE SOLUTIONS
◉ What is opportunity cost?
Answer: The value of the best alternative given up when making a
choice.
◉ You can attend a game, work for $40, or visit home which you
value at $60. You attend the game. What is your opportunity cost?
Answer: $60 because it is the highest-valued alternative you gave up.
◉ You give up 5 hours of work at $20 per hour and spend $30 going
out. What are your forgone earnings and total cost?
Answer: Forgone earnings = $100. Total economic cost = $130.
◉ What is marginal analysis?
Answer: Comparing the additional marginal benefit of one more unit
with its additional marginal cost.
◉ When should a rational person consume one more unit?
Answer: When marginal benefit is greater than or equal to marginal
cost.
,◉ Netflix MB and MC at hour 6 are $20 and $18; at hour 7 they are
$16 and $21. Optimal hours?
Answer: 6 hours. Take hour 6 because MB > MC but do not take hour
7 because MC > MB.
◉ Your current phone plan costs $50 and an upgraded plan costs
$75. What is the marginal cost of upgrading?
Answer: $25 because marginal cost is the additional cost.
◉ What is a positive economic statement?
Answer: A testable statement about what is.
◉ What is a normative economic statement?
Answer: A value judgment about what should or ought to be.
◉ "Gas prices should be below $2 per gallon." Positive or normative?
Answer: Normative because it expresses a value judgment.
◉ What does ceteris paribus mean?
Answer: Holding all other relevant factors constant.
, ◉ Why do economists use models?
Answer: To simplify reality, make predictions, and compare those
predictions with real-world evidence.
◉ What does a Production Possibilities Curve (PPC) show?
Answer: The maximum combinations of two goods that can be
produced with current resources and technology.
◉ What does a point on the PPC represent?
Answer: Productive efficiency because all available resources are
being used efficiently.
◉ What does a point inside the PPC represent?
Answer: Productive inefficiency because some resources are
unemployed or inefficiently used.
◉ What does a point outside the PPC represent?
Answer: A combination that is currently unattainable with existing
resources and technology.
◉ How do you calculate opportunity cost between two PPC points?
Answer: Amount of one good given up divided by the amount of the
other good gained.
COMPLETE SOLUTIONS
◉ What is opportunity cost?
Answer: The value of the best alternative given up when making a
choice.
◉ You can attend a game, work for $40, or visit home which you
value at $60. You attend the game. What is your opportunity cost?
Answer: $60 because it is the highest-valued alternative you gave up.
◉ You give up 5 hours of work at $20 per hour and spend $30 going
out. What are your forgone earnings and total cost?
Answer: Forgone earnings = $100. Total economic cost = $130.
◉ What is marginal analysis?
Answer: Comparing the additional marginal benefit of one more unit
with its additional marginal cost.
◉ When should a rational person consume one more unit?
Answer: When marginal benefit is greater than or equal to marginal
cost.
,◉ Netflix MB and MC at hour 6 are $20 and $18; at hour 7 they are
$16 and $21. Optimal hours?
Answer: 6 hours. Take hour 6 because MB > MC but do not take hour
7 because MC > MB.
◉ Your current phone plan costs $50 and an upgraded plan costs
$75. What is the marginal cost of upgrading?
Answer: $25 because marginal cost is the additional cost.
◉ What is a positive economic statement?
Answer: A testable statement about what is.
◉ What is a normative economic statement?
Answer: A value judgment about what should or ought to be.
◉ "Gas prices should be below $2 per gallon." Positive or normative?
Answer: Normative because it expresses a value judgment.
◉ What does ceteris paribus mean?
Answer: Holding all other relevant factors constant.
, ◉ Why do economists use models?
Answer: To simplify reality, make predictions, and compare those
predictions with real-world evidence.
◉ What does a Production Possibilities Curve (PPC) show?
Answer: The maximum combinations of two goods that can be
produced with current resources and technology.
◉ What does a point on the PPC represent?
Answer: Productive efficiency because all available resources are
being used efficiently.
◉ What does a point inside the PPC represent?
Answer: Productive inefficiency because some resources are
unemployed or inefficiently used.
◉ What does a point outside the PPC represent?
Answer: A combination that is currently unattainable with existing
resources and technology.
◉ How do you calculate opportunity cost between two PPC points?
Answer: Amount of one good given up divided by the amount of the
other good gained.
