Microeconomics

What is an example of a positive statement and a normative statement?

A positive statement is that is currently raining. A normative statement is that people should wear boots in the rain

What is the difference between allocative efficiency and productive efficiency?

Allocative efficiency produces a mixture of goods based on societal demands and productive efficiency produces goods based on the idea that you can't produce more of one good without decreasing the production of another good

What are two determinants of the price elasticity of demand?

Availability of substitutes and income

The price of books increases. What happens to the demand for books? What happens to the quantity demanded?

Demand does not change and quantity demanded decreases

Explain what it means when we say that demand is elastic? Inelastic?

Elastic demand is one that responds greatly to a change in price and inelastic demand does not respond much to a change in price

Identify two differences between a traditional and a market economy.

In traditional economies products and processes are based on traditions and there is little change or economic growth. Market economy products and processes are based on consumer demand which results in change and economic growth

Identify and describe the four factors of production.

Natural resources (land) Labor (human capital) Capital (machinery, factories, equipment) Entrepreneurship

Explain how scarcity leads to tradeoffs.

People must make choices when faced with limited resources

What one factor causes a change in quantity demanded? Illustrate this using a graph.

Price

What is the price elasticity of demand? How is it calculated?

Responsiveness to a change in price. It is calculated by dividing the percent change in the quantity demanded by the percent change in the price of a good

What happens to the supply of ice cream when the price of milk (a resource used to make ice cream) increases? What happens to quantity supplied? Illustrate using a graph.

Supply decreases because the cost to produce it increased.

Describe the flow of money in a simple circular flow diagram.

The direction of the arrows shows that in the goods and services market, households receive goods and services and in the factors market, firms receive factors of production. In the opposite direction, arrows show households receive payment for their factors of production from firms through wages, rent, interest, and profits, and firms receive payment for providing goods and services to households

How do you determine who has the comparative advantage in a given situation?

The entity that sacrifices the least has the comparative advantage

What one factor causes a change in quantity supplied? Illustrate this using a graph.

The price for which it sells

What is the "Law of Supply"?

The principle that suppliers will normally offer more for sale at higher prices and less at lower prices

What is the definition of economics?

The study of how people seek to satisfy their needs and wants by making choices

What is the definition of opportunity cost?

The value of something that is given up by choosing one alternative over another. What you lose when you choose.

Draw a perfectly inelastic demand curve. What happens to equilibrium price and quantity if supply increases.

Vertical line, nothing

What are three broad economic questions that all economies must answer?

What should be produced, how to produce goods/services, and for whom to produce them

Define the term "Comparative Advantage".

When one can produce a good at a lower cost in terms of other goods or has a lower opportunity cost of production

Draw a perfectly elastic demand curve. What happens to equilibrium price and quantity if supply increases.

_____________________________________, Nothing

What is meant by making choices at the margin?

a decision to do a little more or a little less of something.

What is the "Law of Demand"?

consumers buy more of a good when its price decreases and less when its price increases

What are the factors that change supply? Illustrate this using a graph.

cost of production, number of sellers, technology, seller expectations, natural events, returns from alternative activities

What are the benefits of specialization and trade?

countries can experience more products when they produce the goods they are efficient at producing and trading those good for goods efficiently procuded by other countries

How can you calculate opportunity cost using the PPF?

divide what is sacrificed by what is gained

How does a market eliminate shortages and surpluses?

increase and decrease prices

Give an example of the difference between microeconomics and macroeconomics.

microeconomics focuses on the actions of individual agents within the economy, like households, workers, and businesses and Macroeconomics focuses on broad issues such as growth of production, the number of unemployed people, the inflationary increase in prices, government deficits, and levels of exports and imports

What are the factors that change demand? Illustrate this using a graph.

price of complements and subsittutes, income, population, consumer preference

What is the difference in opportunity cost between a straight line PPC/PPF and a bowed out PPC/PPF?

the laws of diminishing returns - as additional resources are allocated marginal benefits decline

What is price elasticity of supply?

the percentage change in quantity supplied divided by the percentage change in price

Define the term "Absolute Advantage".

when one can produce more of a good than another for the same resources