1. An economic ________ is a simplified version of some aspect of economic life used to analyze an economic issue.

a. variable

b. market

c. model

d. trade-off

Scenario 1-2

Suppose a hat manufacturer currently sells 2,000 hats per week and makes a profit of

$5,000 per week. The plant owner observes, “Although the last 300 hats we produced and sold increased our revenue by $1,000 and our costs by $1,100, we are still making an overall profit of $5,000 per week so I think we’re on the right track. We are producing the optimal number of hats.”

2. Refer to Scenario 1-2. Had the firm not produced and sold the last 300 hats, would its profit be higher or lower, and if so by how much?

a. Its profit will be $1,100 higher.

b. Its profit will be $1,000 lower.

c. Its profit will be $100 lower.

d. Its profit will be $100 higher.

3. The term market in economics refers to:

a. a place where money changes hands.

b. a legal institution where exchange can take place.

c. a group of buyers and sellers of a product and the arrangement by which they come together to trade.

d. an organization which sells goods and services.

Scenario 1-3

Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes, “Although the last 400 t-shirts we produced and sold increased our revenue by $4,000 and our costs by $4,800, we are still making an overall profit of $10,000 per week so I think we’re on the right track. We are