Define implicit costs and provide an example that shows why it is important to consider them in a discussion of profit.
What will be an ideal response?
They should make clear that implicit costs are opportunity costs that do not require a monetary payment, but that they still impact whether a business enterprise is worth undertaking. For example, an attorney who opens a private law practice must give up the salary she would be paid in a larger firm. In addition to the salary she gives up when she ceases to be an employee, her implicit costs also include the tax, health, and vacation benefits she forfeits as well as the prestige attached to working for a larger firm. Having her own business must be worth all that she forgoes to make it worth her while.
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The cost of an action is
A) indeterminate from a strictly economic point of view. B) the value of the next-best alternative opportunity sacrificed C) the cost to the consumer plus the cost to the producer. D) the number of consumers needed to set the price. E) measured only in money.
If government spending decreases, which of the following would occur?
a. An increase in GDP, an increase in the price level, an increase in money demand, and an increase in the interest rate b. An increase in GDP, a decrease in the price level, an increase in money demand, and a decrease in the interest rate c. A decrease in GDP, a decrease in the price level, a decrease in money demand, and a decrease in the interest rate d. A decrease in GDP, a decrease in the price level, an increase in money demand, and an increase in the interest rate e. An increase in GDP, an increase in the price level, a decrease in money demand, and a decrease in the interest rate.
A street light is
a. rival and exclusive, and therefore is a public good b. nonrival, but since it is exclusive, it is a private good c. exclusive, but since it is nonrival, it is a public good d. nonrival and nonexclusive, and therefore is a public good e. nonrival and nonexclusive, and therefore is a private good
In the aggregate demand and aggregate supply model,
a. the factors that cause the individual demand curve to slope downward are the same as the factors that cause the aggregate demand curve to slope downward. b. the factors that cause the individual supply curve to slope upward are the same as the factors that cause the short-run aggregate supply curve to slope upward. c. the upward-sloping aggregate demand curve intersects the downward-sloping short-run aggregate supply curve to determine the economy's price level and GDP. d. the upward-sloping short-run aggregate supply curve intersects the downward-sloping aggregate demand curve to determine the economy's price level and GDP.