ECON 2100 Study Guide - Quiz Guide: Tax Incidence, Price Controls, Economic Equilibrium

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Published on 17 Sep 2016
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1. Scarcity- the limited nature of society’s resources relative to unlimited human’s want.
2. Opportunity Cost- what you give up to obtain it. Benefit that you can get from best alternative.
3. Invisible hand- how individuals pursuit of self-interest in a free market system brings about the
societal material well-being through voluntary exchange.
4. Normative vs. Positive Statements: N- Policy advisors which attempt to prescribe the world as it
should be. P- Scientists which attempt to describe the world as it is.
5. Ceteris Paribus- (all else equal) A device used to analyze the relationship between two variables
while the values of other variables are held unchanged.
6. People think at the margin:
7. A. Comparative Advantage vs. absolute advantage: CA-Differences in the costs of production
determine “who should produce what?” AA: The comparison among producers of a good
according to their productivity
B: CA and opportunity cost and trade: The producer who has the smaller opportunity cost of
producing a good is said to have a comparative advantage in producing that good. Compares
producers of a good according to their opportunity cost.
C: What is range of a fair price for trade? For both parties to gain from trade, the price at which
they trade must lie between the two opportunity costs.
8. PPF:
A. Which points are productively efficient? Points that lie on the PPF or inside it.
B. PPF and economic growth (shift of PPF curve): Additional resources or improvements in
technology can lead to the economy producing more of certain goods and more efficiently.
C. Straight line PPF is related to constant opportunity cost; while bowed shape PPF is related
changing opportunity cost along the line.
9. Adam Smith and David Ricardo: Adam Smith- In his 1776 book An Inquiry into the Nature and
Causes of the Wealth of Nations, Adam Smith performed a detailed analysis of trade and
economic interdependence (specialization). David Ricardo: In his 1816 book Principles of
Political Economy and Taxation, David Ricardo developed the principle of comparative
advantage as we know it today.
10. Demand:
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