Question

Microeconomics Test 1 Study Guide Chapter 1 1. Define Economics 2. Define the Scarcity Principle 3. Define the Cost-Benefit Principle 4. Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $30, and if she washes clothes, she will earn $45. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose to ______ because it generates a ______ economic surplus.

Answer 1

Explanation:

1. Economics can be defined as the study of how limited resources can be used to satisfy unlimited wants and needs.  
2. Scarcity principle can be defined as a theory which high demand for good accompanied with limited supply leads to a mismatch between equilibrium demand and desired supply.
3. The cost-benefit principle is a method to analyze economic decisions. A decision cannot be taken up if the cost is higher than the benefit.  
4. Janie can earn $30 if she mows the lawn and $45 if she washes clothes. The opportunity cost is the same for both. She should choose to wash clothes because it generates more economic surplus.