ECON-100 FA4 Chapter Notes - Chapter 2: Corn Laws, Absolute Advantage, Physical Capital

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18 Aug 2018

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Purpose is to improve our understanding of trade-offs by considering a simplified economy that produces only two goods: the frontier: the line in the diagram that shows the possible maximum quantity of a product. Full employment (1) where all available resources are being used; points on the line. Production points (1) if a production point lies inside or on the frontier, it is feasible (2) if a p(cid:325)oductio(cid:290) poi(cid:290)t lies outside the f(cid:325)o(cid:290)tie(cid:325), it is(cid:290)"t feasible: helps us understand aspect of the real economy: Workers are efficient in producing both products, raw materials availability) (3) always a negative trade off; give up in order to gain (4) when production possibility frontier is curved (a) the opportunity costs are increasing (i) Economists believe that in reality opportunity costs are typically increasing because as more of a good is produced, its opportunity cost typically rises because well-suited materials are used up and less adaptable ones must be used instead.

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1. Scarcity in economics means: we do not have sufficient resources to produce all the goods and services we want. the wants of people are limited. there must be poor people in rich countries. shortages exist in nearly all markets. You like to read Vogue and Sports Illustrated. You have only $5 to spend, so you only buy Sports Illustrated. The statement that best represents this economic concept is: resources are scarce. the real cost of something is what you must give up to get it. positive economics explains how the economy actually works. economic models are used to answer âwhat ifâ questions. . If the state government allocates additional spending on education, the opportunity cost is: zero. the dollar amount of the additional spending. considered only if additional taxes need to be raised to fund the spending. measured in terms of the best alternative use for that money. For a student that owns his or her own home and doesn't plan to live in the dorm the cost of going to college is: tuition and the cost of housing. tuition, the cost of housing, and the cost of books. tuition, the cost of books, and forgone income. forgone income only. Keynesian economics stressed: the importance of total spending. the self-correcting power of free markets. the long run. that the Depression should run its course to bring down the high cost of living. The economic policy that uses changes in government spending and taxes to affect the overall spending in the economy is known as: a tax-and-spend policy. monetary policy. fiscal policy. free-trade policy. When building a model, economists: simplify reality in order to highlight what really matters. attempt to duplicate reality in all of its complexity. ignore the facts and instead try to determine what the facts should be. are careful to avoid the scientific method. Which is a normative statement? The minimum wage has not kept pace with inflation. The minimum wage is an important tool in fighting poverty and should be increased. The minimum wage can create higher unemployment for teens and unskilled workers. A higher minimum wage is expected to increase the price of a fast-food cheeseburger. Which is an example of a positive statement? The poverty rate should be 4%. A high rate of economic growth is a more important economic goal than a low rate of unemployment. The federal government pays for 46% of U.S. health care costs. Everyone in the country should be covered by national health insurance. Economists may disagree about policies because they: may approach the issue using the same sets of values. may use different economic models. enjoy disagreeing with each other. only consider issues in positive economics.

ECON-100 FA4 Chapter Notes - Chapter 2: Corn Laws, Absolute Advantage, Physical Capital

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