Economics is the study of choice under conditions of scarcity
In the US, individuals are forced to make choices because both time and spending
power are scarce
Society’s resources include land, labor, and capital
A physician’s knowledge and skills are referred to by economists as human capital
A microeconomist might study why wages for females are lower than for males in a
particular labor market
This represents a macroeconomic issue: “Central bank raises interest rates”
If you have two options of going to college or going to work, the opportunity cost of
going to college is the income you could have made working plus the direct cost of
attending the college
When there is an improvement I technology, all else constant, the production
possibilities frontier will shift outward
The PPF can be used to illustrate the concepts of productive inefficiency, opportunity
cost, scarcity, and the law of increasing opportunity costs, but not the law of demand.
The law of increasing opportunity cost states that the opportunity cost of producing a
good rises as production of that good rises.
On the PPF graph, if a point moves from inside the graph to the line of the graph, it is
caused by eliminating productive inefficiency.
The principle of specialization and exchange implies that total production is highest
when individuals specialize according to their comparative advantages.
If one person has a comparative advantage in A and another person has a comparative
advantage in B, then we cannot conclude anything about absolute advantage
Under Market capitalism, resources are allocated primarily through prices
A group of buyers and sellers with the potential to trade with each other is known as a
In analyzing the market for a particular good, the most appropriate size of the market to
consider depends on the purpose of the analysis In a circular flow diagram of the economy, households and businesses interact in both
product markets and resource markets
The demand curve for a particular good indicates the various quantities demanded at
various prices, other things equal
A decrease in the price of a particular good, with all other variables constant, causes a
movement along a given demand curve to a higher quantity demanded.
An increase in the price of college football tickets would not cause the demand curve
for college football tickets to shift
If the price of orange juice rises, the demand for grapefruit juice will increase because
the two goods are substitutes.
Assuming that baseball and football cards are substitutes, a leftward shift in the demand
curve for baseball cards can be caused by a decrease in the price of football cards
“As income rises, the demand for most goods also rises.” This statement suggests that
most goods are normal goods
If two goods are often consumed together, they are complementary goods
What do supply and demand curves have in common? The both show a relationship
between quantity and price
If the resource prices faced by a firm rise, the result is a decrease in supply
Price ceilings are primarily targeted to help consumers, while price floors generally
When the minimum wage is set above the equilibrium market wage, the unemployment
rate will rise
To maintain a price floor, the government should buy the excess supply
If an excise tax is imposed on a good or service, the supply curve will shift upward
The incidence of an excise tax refers to who really pays it
A stock variable measures a quantity in existence at a moment in time
Another term that could be used to elasticity is sensitivity
If the price elasticity of demand is 3.0, then a 12% drop in price leads to a 36% rise in
the quantity demanded The slope of the demand curve and the price elasticity of demand are different because
slope is based on absolute changes and elasticity is based on percentage change
If the demand curve is a straight line and has the nominal negative slope, then as quantity
demanded increase, demand becomes more inelastic.
If the demand curve is a vertical line, then demand is perfectly inelastic
If demand is perfectly elastic, then the demand curve is a horizontal line
If demand is price elastic, a decrease in price results in an increase in total revenue to
An inferior good is any good whose demand curve shifts to the left as income rises
If the crossprice elasticity of demand between two goods is 2.2, then the two goods are
According to the law of increasing opportunity cost, opportunity cost rises s society
produces more of a good or service.
If a store increases its price of a good, but sells the same amount of the good, the
demand for that good is perfectly inelastic
If the price of a good is above market equilibrium, the price will fall, causing the
quantity supplied to fall.
A good is said to be normal when decreases in income lead to a decrease in demand
for the good
Understand the distinction between positive and normative economic statements is
important because it provides a framework for understand differences among
If the economy is producing a combination of goods inside its PPF, some resources are
Consider a good with a price elasticity equal to 1 at every point on its demand curve.
Then total revenue does not change if the price changes
An increase in the price of a substitute results in an increase in the demand of the good A $1 increase in the price of a meal results in a drop in qua