EC250 Lecture Notes - Lecture 1: Opportunity Cost, Longrun, Market Clearing

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26 Sep 2017

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Scarcity: the limited nature of society"s resources. Microeconomics the study of how households and firms make decisions and how they interact in markets. Macroeconomics the study of economy-wide phenomena, including inflation, unemployment, and economic growth: these two branches of economics are closely intertwined, yet distinct they address different questions. It is the relevant cost for decision making. Going to college for a year is not just the tuition, books, and fees, but also the foregone wages. Seeing a movie is not just the price of the ticket, but the value of the time you spend in the cinema. Principle #3: rational people think at the margin. Rational people systematically and purposefully do the best they can to achieve their objectives: make decisions by evaluating costs and benefits of marginal changes incremental adjustments to an existing plan. Incentive: something that induces a person to act, i. e. the prospect of a reward or punishment: rational people respond to incentives.

Related Questions

true or false

Human and nonhuman resources are the inputs used to produce goods and services.

Since resources are scarce, society must make choices about what to produce.

Consumers decide what gets produced in Japan.

Microeconomics is the study of aggregate behavior in the economy.

The three basic questions in economics are who, what and why.

The law of demand states that the quantity demanded of any good is inversely related to its price.

coppermole152

Microeconomics Multiple choice questions. Please answer all the questions.

1. Scarcity:
A. exists because resources are limited while human wants are unlimited.
B. means we are unable to have as much as we would like to have.
C. will likely be eliminated as technology continues to expand.
D. is not an issue addressed in economics.

2. People are forced to make choices because of:
A. unlimited wants and unlimited resources.
B. limited wants and unlimited resources.
C. unlimited wants and limited resources.
D. limited wants and limited resources.
E. irrational wants and limited resources.

3. Which of the following is closest to the definition of capital?
A. c and e.
B. c and d.
C. Tools, equipment, means of transportation
D. Factories and machinery.
E. Borrowed money.

4. Which one of the following is the most accurate definition of economics?
A. Economics is the study of stocks and bonds.
B. Economics is the study of how people allocate unlimited resources.
C. Economics is the study of how consumers choose to spend their income.
D. Economics is the study of how society chooses to allocate scarce resources.

5. The basic difference between macroeconomics and microeconomics is:
A. microeconomics concentrates on individual markets while macroeconomics focuses primarily on international trade.
B. microeconomics concentrates on the behavior of individual consumers while macroeconomics focuses on the behavior of firms.
C. microeconomics concentrates on the behavior of individual consumers and firms while macroeconomics focuses on the performance of the entire economy.
D. microeconomics explores the causes of inflation while macroeconomics focuses on the causes of unemployment.

6. Which of the following is not a resource?
A. Land.
B. Labor.
C. Money.
D. Capital.

7. Which of the following would an economist classify as capital?
A. 100 shares of Microsoft stock.
B. $50 bill.
C. credit card.
D. lawyer's personal computer.

8. Economics, according to its definition, studies how people:
A. earn and spend money.
B. invest in the stock and bond markets.
C. make choices in the face of scarcity.
D. supply goods in response to demand.

9. Which of the following is the best example of a microeconomic topic?
A. The impact that the money supply has on inflation.
B. The reasons for increases in the price of soft drinks.
C. The effect that federal budget deficits have on the interest rate.
D. The tradeoff between inflation and unemployment.

10. Which of the following is a macroeconomics topic?
A. Wages of textile workers in the Northeast.
B. The cost of producing 10,000 bookcases.
C. The economy's annual growth rate.
D. National demand for fish.
E. Effects of farm subsidies on food prices.

11. An economic theory claims that a rise in gasoline prices will cause gasoline purchases to fall, Ceteris paribus. The phrase "Ceteris paribus" means that:
A. other relevant factors like consumer incomes must be held constant.
B. the gasoline prices must first be adjusted for inflation.
C. the theory is widely accepted but cannot be accurately tested.
D. consumers' need for gasoline remains the same regardless of the price.

12. An economic model is:
A. a plastic scaled version of the economy.
B. a complete depiction of reality.
C. an abstraction from reality.
D. applicable to consumer behavior but not to producer behavior.
E. not an accepted tool of the economics profession.

13. Which of the following sayings best reflects the concept of opportunity cost?
A. "You can't teach an old dog new tricks."
B. "There is no such thing as a free lunch."
C. "I have a baker's dozen."
D. "There's no business like show business."

14. The opportunity cost of watching television is:
A. all of the alternative programs that appear on other stations.
B. zero because there is no money expenditure involved.
C. the alternative use of the time foregone by watching the program.
D. zero if it benefits you.

15. Which of the following does not illustrate opportunity cost?
A. If I study, I must give up going to the football game.
B. If I buy a computer, I must do without a 35" television.
C. More consumer spending now means more spending in the future.
D. If I spend more on clothes, I must spend less on food.

16. When deciding whether to buy a second car, marginal analysis indicates that the purchaser should compare the:
A. benefits expected from two cars with the cost of both.
B. additional benefits expected from a second car with the cost of the two cars.
C. dollar cost of the two cars with the potential income that the cars will generate.
D. additional benefits of the second car with the additional cost of the second car.

17. According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study:
A. is positive.
B. outweighs the extra cost.
C. exceeds the benefits of the previous hour of study.
D. will raise your exam score.

1. Explain why economics is a study of choices. Why do we have to make choices?

2. What are the economic resources? Why are they scarce?

3. Outline the differences between macroeconomics and microeconomics.

4. What are the economic questions? How is each question answered?

5. Outline the interaction of supply, demand, and price.

6. What is the difference between a buyers and a sellers market? Provide examples of each in your answer.

7. What causes equilibrium? How does price react?

8. What is the marginal principle? How can you apply it as a consumer?

9. & 10. We all hear talk about the dependency of oil and how higher oil prices affect our economy. Why have we not made greater strides to energy efficiency? Make sure you have at least two references to back your opinion.

EC250 Lecture Notes - Lecture 1: Opportunity Cost, Longrun, Market Clearing

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