2. Hours attendedTotal BenefitMarginal Benefit0 ______ 1400 ______ 2700 ______ 3900 ______ 41000 ______ 51000

3. Hours attendedTotal CostMarginal Cost0 ______ 125 ______ 275 ______ 3175 ______ 4375 ______ 51000

4. Hours Attended Net Benefit Total Benefit Total Cost 0___ 1 2 3 4 5 Marginal Benefit Marginal Cost ___

6. 1100 1000 900 800 700 600 500 400 300 200 100 0 800 700 600 500 400 300 200 100 0

9. PriceQuantityTotalMarginal DemandedRevenue $450 0 $0 ______ 400 1 _____ ______ 350 2 _____ ______ 300 3 _____ ______ 250 4 _____ ______ 200 5 _____

10. QuantityTotal Cost Marginal Cost0 ______ 1250 ______ 2 ____ ______ 3 ____ ______ 4 ____ ______ 5 ____ $250

11. PriceQuantityProfitTotal Revenue Total Cost $4500 ___ 4001 ___ 3502 ___ 3003 ___ 2504 ___ 2005 ___ Marginal Revenue Marginal Cost ___

12. 1400 1200 1000 800 600 400 200 0 300 200 100 0 -100 -200 -300

13. The following table gives the utility points received by a person from each additional hour of exercise per week, as well as the points that each additional hour costs. Using this table, answer the questions below. a. Calculate the total benefit and the total cost of exercising for each of the hours in the table. b. Calculate the net benefit of exercising for each of the hours in the table c. How many hours per week should this person exercise to maximize satisfaction? d. What is the maximum number of net benefit points that can be earned from exercising? Hours of Exercise Marginal Benefit Total BenefitMarginal CostTotal Cost Net Benefit 0xxxxx0 0 160 5 240 10 330 20 4 30 510 40 60 55

14. Externalities 1. Cost to a third party 2. Benefit to a third party sweater factory beach brewery

15. Externalities exist when the market fails to register fully costs and benefits. – External costs : When the actions of an individual or group incur a cost to 3 rd party. – External benefits : Present when the actions of an individual or group generate benefits for 3 rd parties.

16. All of the costs of production are not considered the supply curve understates the true cost of production. Lower production costs mean more output. Too many units are produced. Pollution problems are often a side effect.

17. With a negative externality, too many units are produced at a price below that which would prevail if all costs were identified and factored into the market process. Price Quantity/time P2P2 P1P1 Q1Q1 D S1S1 Q2Q2 S 2 (including external costs) Ideal price and output Actual price and output

18. The demand curve understates the total value of the output. Units that are more highly valued than their costs may not be produced. From society’s viewpoint, too few units may be produced.

19. With a positive externality, too few units are produced at a price below that which would prevail if all the benefits were identified and factored into the market process. Price Quantity/time P2P2 P1P1 Q1Q1 D1D1 S1S1 Q2Q2 Ideal price and output D 2 (including external benefits) Actual price and output

20. Study of economic motives and attitudes of voters and public officials in collective decision making. Maximizing Behavior and the Voting Process –A person’s decision about whether or not to vote in an election depends on his or her marginal benefit and marginal cost of voting. Public Choice 11-4

21. Voters support candidates who will provide them with the most government services and transfer benefits, net of personal costs. Rational Ignorance Effect: Recognizing their vote is unlikely to be decisive, most voters have little incentive to obtain information on issues and alternative candidates. Because of the rational ignorance effect, voters will be uninformed on many issues; such issues will not enter into their decision making process. Public Choice Analysis Voter incentives:

22. –Rational Ignorance Choosing to remain uninformed because the marginal cost of obtaining the information is higher than the marginal benefit from knowing it. –Special Interest Group People who share a common position on a particular issue and actively promote that position. 11-4

23. The Politician-Supplier: Political officials must win elections to be successful and achieve their goals. Rationally uninformed voters often must be convinced to “want” a candidate. $$$ Legislative bodies are something like a Board of Directors. They … establish the general direction of policy, appoint and supervise bureaucrats who carryout the day-to-day operations of government, and, set the budgets of agencies and bureaus. Public Choice Analysis

24. 1.To maximize satisfaction this person should consume: a. 2.5 units d. anywhere between 1.0 and 6.0 units b. 6.0 unitsc. more than 6.0 units. 2.From 0 to 5.0 units consumed, net benefit is: a. increasing. c. increasing and then decreasing. b. decreasing.d. decreasing and then increasing.

25. 3.When calculating profit accountants include: a. explicit costs. c. explicit and implicit costs. b. implicit costs. d. explicit, implicit, and external costs. 4.Excess profit is the profit: a. necessary to continue a business. b. necessary to recover explicit costs. c. necessary to recover implicit costs. d. above what is necessary to continue a business. QuantityTotal Revenue 1$200 2$350 3$450 4$500 5.Given this table, what is the marginal revenue generated when the third unit is sold? a. $50. b. $100.c. $110. d. $150.

26. 6.An externality is the: a.secondary effect of an action. b.unintended consequence of an action. c.effect of an action on people or things that were not involved in the action. d.unknown consequence of an action on people or things who were primary parties in the action. 7.Which of the following is an example of a positive externality? a.A person paints her house, which increases the value of her neighbor's house. b.A firm pays higher prices for resources, which increases its explicit costs of production. c.A firm dumps toxic waste in a river, which causes a community to raise taxes to clean the water. d.None of the above. 8.Which of these would be most likely to produce a negative externality? a.exercise.b.foreign aid. c.air pollution.d.vaccinations.