ECON 1B03 Chapter Notes - Chapter 2: The O.C., Opportunity Cost, Scientific Method

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17 Dec 2012

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ECON 1B03 Full Course Notes

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In the first, economists employ the scientific method, the dispassionate development an testig of theories about how the world works. Assumptions simplify the complex world, make it easier to understand. Model: a highly simplified representation of a more complicated reality. Economists use models to study economic issues. Circular-flow diagram: a visual model of the economy, shows how dollars flow through markets among households and firms. Factors of production: the resources the economy uses to produce goods and services. Capital (buildings and machines used in production) Ppf: a graph that shows the combinations of two goods the economy can possibly produce given the available resources and the available technology. Economy has 50,000 labour hours per month available for production. Moving along a ppf involves shifting resources (e. g. : labour) from the production of one good to the other. Society faces trade-off: getting more of one good requires sacrificing some of the other.

Related Questions

A. Based on the model, firms earn revenue when ______________(firms, households) purchase ___________(goods and services, labor and capital) in markets for goods and services.

B. Suppose Kate earns $800 per week working as a doctor for the Medical Clinic. She uses $9 to order a mojito cocktail at Little Havana. Little Havana pays Hubert $300 per week to wait tables. Hubert uses $175 to purchase medical services from the Medical Clinic.

a. Identify whether each of the following events in the scenario occurs in the market for factors of production or the market for goods and services.

Event	The market for Factors of Production	The market for goods and services
Kate spends $9 to order a mojito cocktail.
Hubert spends $175 to purchase medical services for the Medical Clinic.
Hubert earns $300 per week working for Little Havana.

b. Which of the elements of this scenario represent a flow from a firm to a household? This could be a flow of dollars, inputs, or output.

Kate's labor, The Mojito Kate receives, The $175Hubert's spend to purchase Medical services from the Medical Clinic.

c. The actual economy is more complicated than the one illustrated in the previous circular-flow diagram of a simple economy. True/False.

maroontortoise635

An improvement in technology causes the production possibilities frontier (PPF) to

	shift to the right.
	pivot upward.
	shift to the left.
	pivot downward.

(7)

Which of the following is not shown by the circular flow model?

	The flow of resources in one direction and money in the other
	The equality of aggregate spending and aggregate income
	The interaction of households, firms, and the government
	The total amount of goods and services the economy can produce

(8)

Gross domestic product (GDP) is defined as

	the market value of all final goods and services produced in an economy in a given period of time.
	the market value of all consumption goods and services produced in an economy in a given period of time.
	the market value of all investment goods and services produced in an economy in a given period of time.
	the real value of all investment goods and services produced in an economy in a given period of time.

(9)

Real GDP

	includes all domestic and foreign transactions.
	includes the dollar value of domestic transactions only.
	tries to isolate the effect of changing output, holding prices constant.
	measures GDP in terms of prices of goods and services produced.

(10)

When economists talk about economic growth, they are usually referring to

	the percentage change in nominal GDP.
	the percentage change in real GDP.
	the percentage change in nominal investment.
	the percentage change in real investment.

chocolateant769

21. The English word that comes from the Greek word for "one who manages a household" is

A- market
B- consumer
C- producer
D- economy

Question 22. 22. For a college student who wishes to calculate the true costs of going to college, the costs of room and board

A- should be counted in full, regardless of the costs of eating and sleeping elsewhere.
B- should be counted only to the extent that they are more expensive at college than elsewhere.
C- usually exceed the opportunity cost of going to college.
D- plus the cost of tuition, equals the opportunity cost of going to college.

Question 23. 23. The phenomenon of scarcity stems from the fact that

A- most economies' production methods are not very good.
B- in most economies, wealthy people consume disproportionate quantities of goods and services.
C- governments restrict the production of too many goods and services.
D- resources are limited.

Question 24. 24. Central planning refers to

A- markets guiding economic activity. Today many countries that had this system have abandoned it.
B- markets guiding economic activity. Today many countries that did not have this system have implemented it.
C- government guiding economic activity. Today many countries that had this system have abandoned it.
D- government guiding economic activity. Today many countries that did not have this system have implemented it.

Question 25. 25. Senator Brown wants to increase taxes on people with high incomes and use the money to help the poor. Senator Johnson argues that such a tax will discourage successful people from working and will therefore make society worse off. An economist would say that

A- we should agree with Senator Brown.
B- we should agree with Senator Johnson.
C- a good decision requires that we recognize both viewpoints.
D- there are no tradeoffs between equity and efficiency.

Question 26. 26. Max and Maddy charge people to park on their lawn while attending a nearby craft fair. At the current price of $10, seven people park on their lawn. If they raise the price to $15, they know that only five people will want to park on their lawn. Whether they have seven or five cars parked on their lawn does not affect their costs. From this information, it follows that

A- they should leave the price at $10.
B- it does not matter if they charge $10 or $15.
C- they would do better charging $15 than $10.
D- they should raise the price even more.

Question 27. 27. A circular flow diagram is a model that

A- helps to explain how participants in the economy interact with one another.
B- helps to explain how the economy is organized.
C- incorporates all aspects of the real economy.
D- Both (a) and (b) are correct.

Question 28. 28. In the markets for goods and services in the circular-flow diagram,

A- households provide firms with savings for investment.
B- households provide firms with labor, land, and capital.
C- firms provide households with output.
D- firms provide households with profit.

Question 29. 29. Incomes of U.S. households in the 1970s and 1980s

A- grew rapidly, due to the widespread success of labor unions in pushing up wages during those decades.
B- grew rapidly, due to several increases in the minimum wage during those decades.
C- grew rapidly, due to government policies that discouraged the importation of foreign products during those decades.
D- grew slowly, due to the slow growth of the output of goods and services per hour of U.S. workers' time during those decades.

Question 30. 30. For economists, statements about the world are of two types:

A- assumptions and theories.
B- true statements and false statements.
C- specific statements and general statements.
D- positive statements and normative statements.

marooncat628

ECON 1B03 Chapter Notes - Chapter 2: The O.C., Opportunity Cost, Scientific Method

ECON 1B03 Full Course Notes

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