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 Dont overthink 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



COST vs BENEFIT ANALYSIS











MARGINAL ANALYSIS









MARGINAL BENEFIT/VALUE










MARGINAL COST







GAINS FROM TRADE





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 Gumtree will 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?




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.