In a graph of MB and MC, what does the intersection point represent?
The optimal quantity where total benefit is maximized (MB = MC).
On a MB/MC graph, what does the area where MB > MC indicate?
Consuming more of the good will increase total benefit.
On a MB/MC graph, what does the area where MB < MC indicate?
Consuming less of the good will increase total benefit.
How would a change in price affect the MC curve?
An increase in price would shift the MC curve upward.
How would increased consumer preference affect the MB curve?
Increased consumer preference would shift the MB curve upward.
If the MC curve shifts upward, what happens to the optimal quantity?
The optimal quantity decreases.
If the MB curve shifts upward, what happens to the optimal quantity?
The optimal quantity increases.
What does the area under the MB curve represent?
Total Benefit.
What does the area under the MC curve represent?
Total Cost.
How does the steepness of the MB curve relate to diminishing marginal utility?
A steeper MB curve indicates a faster rate of diminishing marginal utility.
What is Cost-Benefit Analysis?
A method to evaluate if a project or policy's benefits outweigh its costs.
Define Explicit Costs.
Direct, out-of-pocket monetary costs.
Define Implicit Costs.
Indirect costs, also known as opportunity costs. The value of the next best alternative you give up.
What is Total Benefit?
The overall benefit from consuming a certain quantity of goods or services.
What is Total Cost?
The overall cost from consuming a certain quantity of goods or services.
Define Marginal Benefit.
The additional benefit from consuming one more unit of a good or service.
Define Marginal Cost.
The additional cost from consuming one more unit of a good or service.
What are Utils?
Imaginary units of utility or satisfaction used to quantify how much we like something.
Define Diminishing Marginal Utility.
As you consume more of a good, the additional satisfaction you get from each additional unit decreases.
What is Marginal Surplus?
The difference between marginal benefit (MB) and marginal cost (MC).
How does the concept of opportunity cost apply when deciding whether to attend college?
It includes tuition, fees, books, and forgone wages from not working full-time.
How does diminishing marginal utility explain why you eventually stop eating pizza?
Each slice provides less satisfaction than the previous one, until the additional satisfaction is not worth the cost.
Explain how marginal analysis helps a business decide how much to produce.
A business should produce as long as the marginal benefit (revenue) exceeds the marginal cost.
How does cost-benefit analysis apply to government decisions about building a new highway?
The government must weigh the costs of construction against the benefits of reduced travel time and increased commerce.
How does opportunity cost affect the decision to start a business?
It includes the salary you could be earning at another job and the return you could get from investing your capital elsewhere.
If MB > MC, what should a consumer do?
Consume more of the good or service.
If MB < MC, what should a consumer do?
Consume less of the good or service.
If MB = MC, what should a consumer do?
Maintain the current level of consumption, as total benefit is maximized.
Explain how implicit costs impact a business's profit differently than explicit costs.
Implicit costs are not recorded in accounting statements, but they are crucial for economic decision-making when considering profitability.
How does understanding marginal analysis help in personal budgeting decisions?
It helps in deciding whether the additional satisfaction from buying one more item is worth the additional cost.
