Between the Two
What is the difference between a positive and normative statement?
Positive: How the world should be
Normative: Describes how the world is
What is market demand?
The total QD demanded amongst a all buyers in a market
Name something that can shift the PPF
Technology, Factors of Production, Resources
Suppose Canada and China can both produce cars and airplanes, and Canada has the comparative advantage in the production of airplanes while China has the comparative advantage in the production of cars. Also, suppose China has an absolute advantage in the production of both cars and airplanes. What should China and Canada trade?
China: Cars
Canada: Airplanes
What is the difference between a normal vs inferior good?
Normal Good = QD Decreases when Price increases
Inferior Good = QD Increases when Price increases
What is the Law of Supply?
The claim that the quantity supplied of a good rises when the price of the good rises, other things equal.
What is the slope signify on the PPF?
Opportunity Cost
Mexico: 3hrs per Freezer, 6hrs per Tablet
Korea: 1hrs per Freezer, 5hrs per Tablet
Who trades what?
Mexico has a comparative advantage in Tablets. Korea has a comparative advantage in freezers
What is the difference between an absolute advantage and a comparative advantage?
Absolute Advantage: You got the most
Comparative Advantage: You got the lowest Opportunity Cost
Name 4 of the 6 shifters of Supply
1.Technological Innovations
2.Input Prices
3.Taxes and Subsidies
4.Expectations
5.Entry or Exit of Producers
6.Changes in Opportunity Costs
Why might the PPF be bowed shaped?
Washing machines and dryers are complementary goods. When the technology used to produce washing machines improves, what changes occur in the markets for washing machines and dryers?
Supply shifts out for Washing Machines. Price Drops. Since Price Drops, we see an Demand shift (increase) for Dryers as they are complementary goods
What is the difference between a Shortage and Surplus? Talk about QD, QS and effect on Price
Shortage: QD<QS, price increases
Surplus: QS>QD, price decreases
Name all 5 shifters of demand
1. Income
2. Substitute/Compement
3.Tastes
4. Expectations
5. Population
What does the outside circle stand for in the Circular flow diagram?
Cash Flow
Consider Francine’s decision to go to college. If he goes to college, he will spend $21,000 on tuition, $11,000 on room and board, and $1,800 on books. If he does not go to college, he will earn $16,000 working in a store and spend $7,200 on room and board. Francine’s cost of going to college is:
$42,600