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Topic 1: Thinking Like An Economist

IMPORTANT TERMS

Scarcity principle

(no-free-lunch principle)

Surplus

Marginal Analysis

Microeconomics

Macroeconomics

Opportunity cost

Gains from Trade

Sunk Cost

Marginal Benefit

Marginal Cost

Marginal Surplus

Study Tip Dontoverthink microeconomics problems, all the information you need for a

question will always be provided.

Key Concepts

MICROECONOMICS versus MACROECONOMICS

THE SCARCITY PRINCIPLE (AKA THE NO FREE LUNCH PRINCIPLE)

OPPORTUNITY COST

SUNK COST

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COST vs BENEFIT ANALYSIS

MARGINAL ANALYSIS

MARGINAL BENEFIT/VALUE

MARGINAL COST

GAINS FROM TRADE

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Short Answer Questions

1) Six time Grammy winner Taylor Swift is coming to perform in Brisbane and Jill is

desperate for a ticket. She is such a big fan that she is willing to pay up to $200 for a ticket.

Ash is also a big Taylor Swift fan, and he bought a ticket months ago for $100. He hasnt

been able to find anyone to go with him, so hes prepared to sell his ticket. As hes also a

savvy businessman, hes selling it for $175. Suppose Jill sees Ashs ad on Gumtreewill she

buy the ticket?

2) Jared finds himself with his mates at the L Card Launch. Jared was required to purchase a

$10 L-Card to attend. Being a surplus maximiser he realises that cost vs benefit analysis will

enable him to maximise his surplus at this event.

A) Should Jared include the $10 cost of his L Card in determining how many drinks to drink?

Jared then reflects on how much he values each vodka sunrise at and realises that he values

the first at $10, the second at $7, the third at $4 and his fourth at $1, given people judge

him and he is trying to watch his calories. Assume each drink costs $3.

B) Is the trend of the Marginal Benefits to be expected?

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C. Calculate how many vodka sunrises Jared should consume by conducting Marginal

Analysis.

D. Now ensure that your answer correlates with that provided by looking at the Total

Surplus

Multiple Choice Questions

1. Which of the following would make the need for economics disappear?

a. Needs are limited

b. Resources are unlimited

c. Resources are limited

d. Wants are limited

e. Wants are unlimited

2. You are trying to choose between two drinks at a bar. An Appletini is priced at$15, though youd be prepared to pay up to $20 for it. An Absinthe Bomb costs $14

and you would not consider paying more than $15 for it. In order to maximise your

surplus you:

a. Choose the Absinthe Bomb as it is cheaper.

b. Are undecided as you are prepared to pay up to $15 for an Absinthe

Bomb and the Appletini costs $15.

c. Choose the Absinthe Bomb as it is has the highest alcohol volume.

d. Choose the Appletini as doing so would give you a surplus of $5.

e.

None of the above.