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MSU EC 201 Exam 1 With Complete Solutions Graded A+.
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10/12/24, 12:17 PMMSU EC 201 Exam 1
Jeremiah
Terms in this set (78)
-the science of choice
Economics is
-study of how people use their limited resources to satisfy unlimited desires
resources are... scarce, therefore we must make choices
1. what to produce
3 questions any society must answer 2. how to produce
3. whom to produce for
what IS; can be shown correct or incorrect
positive statement
-factual statements
normative statement what OUGHT TO be; involves value judgements, cant be proven right or wrong
Micro:
-small
-decisions of individual units
ex. households: what to buy? how much to save?
businesses: what to sell? how to make? price?
Micro vs. Macro (ecomonics) -interaction between households and businesses is important
Macro:
-big
-TOTAL AGGREGATES of the economy
-OVERALL RATE of economic growth, unemployment, inflation, etc.
-cant be too small/weak (Somalia)
-cant be too strong/overpowering (N. Korea)
characteristics of an ideal Government -want strong enough govt. to maintain order but allow ordinary people to work hard,
study, invest, start businesses...
-good to have govt. institution that encourages desirable behavior
-benefit >or= cost; do it ( just assume if = the action takes place)
-benefit < cost; dont do it
comparing benefits and cost
if we identify and measure all the costs and benefits we are likely to make good
decisions
MSU EC 201 Exam 1
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, 10/12/24, 12:17 PM
-value of next best alternative
opportunity cost of action
-what you give up to do an action
-meaning you pay money for it
explicit opportunity costs
-easy to measure
-zero explicit out of pocket costs
ex. baskin robbins has "free" ice cream cones
-lets say long line to wait in; true OC of ice cream => explicit cost(zero) + implicit
implicit opportunity costs
cost(big) = big cost
-in this case, time is an implicit cost
-some people would pay money (explicit) to not wait in a long line
a graph of the combinations of outputs/activities that can be produced IF all
production possibilities frontier (PPF)
available resources are used as well as possible
doing the best we can with what we have
efficient
-lies on the frontier line on a PPF graph
not producing at maximum capability
inefficient
-below the frontier line on a PPF graph
when is PPF graph a straight line? if resources and technology are the same for both (all) products
if the same resources and technology are 3/3 links = 1/3 pattys
used to make sausage links and sausage 1 link = 1/3 pattys
pattys and with the same amount of
materials could make either 3 links or 1
patty, what is the opportunity cost of a
sausage link?
what if we have a PPF where the products the graph will be curved, concave with respect to the origin
use different resources and technology? -we observe the principle of increasing opportunity cost
-improved technology
-capital investments (factories, equipment, warehouses, offices, railroad
how can PPF be pushed outward?
cars/shipping trucks)
-improvement in quantity and quality of labor force
if the capital stock is allowed to deteriorate, or if the capital stock is destroyed by
when can PPF be pushed inward? war or natural disaster, or if the labor force shrinks in size, or if skills are lost, or if
technologies are lost
when under the PPF, how do you get reduce inefficiency
more?
demand behavior of buyers
supply behavior of sellers
willing buyer and willing seller
successful transaction -mainly concerned with VOLUNTARY transactions
-need to get buyers and sellers together; doesnt have to be face to face
market organized system of communication between buyers and sellers
-taste
-income
influences on buyers -prices of alternatives
-expectations of future prices and incomes
-CURRENT PRICE OF GOOD IN QUESTION
-current price
2 sets of influences of demand -anything else (incomes, tastes/preferences, prices of related goods, expectations
MSU EC 201 Exam 1 of future prices and income, # buyers)
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