EC 110 Study Guide - Spring 2018, Comprehensive Midterm Notes - Demand Curve, Compact Cassette, Perfect Competition
EC 110
MIDTERM EXAM
STUDY GUIDE
Fall 2018
Chapter 2: The Discipline of Economics
1. Economics Defined
1. Economics
1. A social science that studies how resources are used and is often
concerned with how resources can be used to their fullest potential
2. Macroeconomics versus Microeconomics
1. Macroeconomics
1. Involves economic problems encountered by the nation as a whole
2. Microeconomics
1. Concerned with the economic problems faced by individual units within
the overall economy (families, individuals, firms)
3. Positive versus Normative Economics
1. Positive Economics
1. Based on the scientific method
1. hypotheses formulated and tested with experiments
2.
3. Normative Economics
1. Involves value judgments and opinions
2. Based on the way someone believes things ought to be
3. No scientific investigation involved
4. Resources
1. Resource
1. Anything that can be used to produce a good or service
2. Categories
1. Land
1. all natural resources
2. Labor
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1. all human attributes that are productive
2. service, function, or task performed to produce something
3. Capital
1. productive equipment or machinery
5. Opportunity Cost
1. Opportunity Cost
1. What must be sacrificed in order to obtain something
2. Efficiency
1. Implies using resources to their fullest potential
3. Mathematically
1. Opportunity cost of Good X = Change in Good Y production / Change in
Good X production
2. Will always equal some number of units of Good Y
4. In Terms of Macroeconomics
1. If a nation decides to produce one more unit of Good X, how many units
of Good Y will be sacrificed?
6. Production Possibilities Frontier
1. Definition
1. The graphical portrayal of hypothetical production possibilities
2. Shows the combinations of two goods that can be produced if the
economy uses all of its resources fully and efficiently
2. Points Inside the Frontier
1. Resources are not being used fully or efficiently
3. Points outside the Frontier
1. Unobtainable at this time
2. May be obtained in the future because the frontier may shift
4. Factors that Cause a Shift
1. Changes in the amount of resources in the economy
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