Basic Economic Concepts
List one basic assumption of Economics
Everyone's goal is to make choices that maximize their satisfaction.
Everyone acts rationally by comparing the marginal costs and marginal benefits of every choice
List one example for land, labor, and capital as described as factors of production
Land: some natural resource, i.e. a river
Labor: some human effort, i.e. a construction worker
Capital: any manufactured good used to make another good, i.e. a factory.
What would happen to the market for grapes if a new study showed that eating grapes drastically decreases the risk of cancer and the wages increased for workers who grew grapes? (Increase, decrease, or indeterminate)
a. Demand
b. Supply
a. increase
b. decrease
Joe does not make money from eating chocolate chocolate chip ice cream. He could have mowed the neighbor's lawn for $50 or babysat a cat for $10. What is the opportunity cost of Joe eating ice cream at this point in time?
$50, because we take the maximum utility among all alternatives to find the opportunity cost
An outward shift in a Production Possibilities Curve is most likely caused by
A- An improvement in technology
B- An increase in the number of workers
C- A natural disaster
D- A decrease in price
B- An increase in the number of workers
Determine whether minimum wage for workers would best be resolved with a price floor or price ceiling
Price floor
Describe a difference between short and long run.
In the short run, one factor of production is fixed but not in the long run.
In the long run, there are no fixed costs and only variable costs (Because no factors of production are fixed)
The Phillips Curve describes the inverse relationship between inflation and ____
unemployment
What would happen to the market for grapes if a new study showed that eating grapes drastically decreases the risk of cancer and the wages increased for workers who grew grapes? (Increase, decrease, or indeterminate)
a. price
b. quantity
a. increase
b. indeterminate
Joe makes optimal decisions with regards to eating chocolate chocolate chip ice cream.
- Assume the marginal cost is fixed at 3 utils per cone. What will be the marginal benefit of the last ice cream cone he eats?
3 utils because MR = MC
Which of the labelled points on this graph are productively efficient?
Points Y, E, I are productively efficient because they are on the production possibilities curve.
Assume that a country’s market for grapes is currently at equilibrium.
Assume that the demand for grapes suddenly shifts right. What will happen to the price?
Increase
Japan can choose to produce stoves and cars, as shown in the production possibilities frontier below.
- Give the maximum number of cars that can currently be made if 4 stoves are produced, and explain why. Assume the production possibilities frontier is perfectly linear.
2
Describe the opinion of classical economists on supply and demand
supply creates its own demand
most important factor is supply
Which of the labelled points on this graph can be achieved without economic growth?
Points A, Y, E, I can be achieved without economic growth because they are below or on the production possibilities curve.
Assume that a country’s market for donuts is currently at equilibrium.
Describe how the market would return to equilibrium after supply takes a hit and shifts to the left
Increasing price and decreasing quantity
Japan can choose to produce stoves and cars, as shown in the production possibilities frontier below.
- The marginal cost for Taiwan between stoves and cars is 3 cars per stove. Assuming Japan and Taiwan want to trade, what should Japan specialize in producing? Explain.
Stoves, because the marginal cost is 0.5 cars per stove, so Japan has a comparative advantage in stoves and Taiwan has a comparative advantage in cars