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First : Define the followingLaw of demand: Other things equal, when the price of a good rises, the quantity demanded of the good falls.Opportunity Cost: the cost of something is what you give up to get it.The circular-flow diagram: is a visual model of the economy that shows how dollars flow through markets among households and firmsA competitive market : is a market in which there are many buyers and many sellers so that each has a negligible impact on the market price. ( ice cream market)Tradeoffs : Once we have reached the efficient points on the frontier, the only way of getting more of one good is to get less of the otherMicroeconomics is the study of how households and firms make decisions and how they interact in specific markets.price takers no single buyer or seller can influence the price, in perfectly competitive markets each takes the price as given buyers and sellers must accept the price the market determinesDemand Schedule The demand schedule is a table that shows the relationship between the price of the good and the quantity demandedQuantity demanded is the amount of a good that buyers are willing and able to purchaseDemand Curve: The demand curve is a graph of the relationship between the price of a good and the quantity demanded.Market demand refers to the sum of all individual demands for a particular good or service.Equilibrium refers to a situation in which the price has reached the level where quantity supplied equals quantity demanded. Quantity supplied is the amount of a good that sellers are willing and able to sellEfficiency The economy can produce at any point on or inside the production possibilities frontier, an outcome is said to be efficient if the economy is getting all it can from the scarce resources availableEconomic Growth: The tradeoff can be changed over time.. As a result, the production possibilities frontier shifts outwardcomparative advantage the comparison among producers of a good according to their opportunity cost absolute advantage the comparison among producers of a good according to their productivity Chose the right answer The term “Economics" was popularized by such neoclassical economistsThomas Robert Malthus David Ricardo Alfered Marshall AlferedAdem Smith,Modern economic analysis begun with Adem Smith,Thomas Robert Malthus David Ricardo Alfered MarshallHuman population, tended to increase geometrically, while the production of food, increased arithmetically Adem Smith,Thomas Robert Malthus David Ricardo Alfered Marshall belived that a nation's wealth depended on its accumulation of gold and silver Adem Smith,Thomas Robert Malthus David Ricardo MercantilismAlfered Marshall believed that only agricultural production generated a clear surplus over cost, so that agriculture was the basis of all wealthAdem Smith,Thomas Robert Malthus David Ricardo MercantilismAlfered MarshallPhysiocratsscience which enquires into the nature and cause of wealth of nation” Adem Smith,Thomas Robert Malthus David Ricardo MercantilismAlfered MarshallPhysiocratsmankind in the ordinary business of life; it is on one side a study of wealth; and on other; side, a part of the study of man.MarshallAdem Smith,Thomas Robert Malthus David Ricardo MercantilismAlfered MarshallPhysiocratsscience which studies human behavior as a relationship between ends and scarce means which have alternate usesAdem Smith,Thomas Robert Malthus David Ricardo MarshallRobbinsMercantilismThe birth of economics as an intellectual discipline can be dated fairly precisely in theeighteenth century withA) the publication of the book, The Wealth of Nations.B) the opening of the London stock exchange.C) the development of the factory system.D) the introduction of paper currency.10- Who wrote The Wealth of Nations?A) Adam Smith B) Michael ParkinC) Thomas Jefferson D) Karl Marx1) When an economy produces more houses and fewer typewriters, it is answering the ________question.A) "what" B) "how" C) "where" D) "for whom"Answer: A2) When firms in an economy start producing more computers and fewer televisions, they areanswering the ________ question.A) "when" B) "for whom" C) "what" D) "where"Answer: C3) When a farmer decides to raise hogs instead of cattle, the farmer is answering the ________question.A) "what" B) "for whom" C) "how" D) "why"Answer: A4) When a farmer decides to grow sugar cane instead of radishes, the farmer is answering the________ question.A) "what" B) "when" C) "for whom" D) "why"Answer: A5) Whether a company produces fishing rods mostly by hand or using high-tech machinery is aquestion ofA) for whom will goods be produced. B) why will the goods be produced.C) where will the goods be produced. D) how will the goods be produced.Answer: D6) When a farmer decides to harvest oranges by huge machines instead of by migrant workers, the farmer is answering the ________ question. A) "how" B) "scarcity" C) "why" D) "what" Answer: A8) When an economy produces more houses and fewer typewriters, it is answering the question. A) "where" B) "for whom" C) "how" D) "what"9) When firms in an economy start producing more computers and fewer televisions, they areanswering the question. A) "where" B) "when" C) "what" D) "for whom"11) When China builds a dam using few machines and a great deal of labor, it is answering the________ question. A) "how" B) "what" C) "where" D) "for whom"12) When an economy produces more houses and fewer typewriters, it is answering the ________question.A) "what" B) "how" C) "where" D) "for whom"Answer: A MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question1) Economics is best defined as the study of how people, businesses, governments, and societiesA) make choices to cope with scarcity. B) attain wealth.C) choose abundance over scarcity. D) use their infinite resources.2) Economics is best defined asA) how people make money and profits in the stock market.B) making choices from an unlimited supply of goods and services.C) making choices with unlimited wants but facing a scarcity of resources.D) controlling a budget for a household.Answer: C3) The study of economicsA) focuses mainly on individual consumers.B) arises from the fact that our wants exceed available resources.C) recognizes that scarcity does not affect rich nations.D) deals mainly with microeconomics.Answer: B4) Which of the following best defines the subject of economics?A) the science that studies unemployment, inflation, and economic stabilityB) the art of making moneyC) the study of choices that businesses make to maximize profitD) the study of choices made to cope with scarcityAnswer: D5) Economics is the study ofA) the distribution of surplus goods to those in need.B) affluence in a morally bankrupt world.C) the choices we make because of scarcity.D) ways to ways to reduce wants to eliminate the problem of scarcity. Answer: C6) All economic questions arise becauseA) people are greedy.B) production possibilities are unlimited.C) we want more than we can get.D) people are irrational.Answer: C1- The study of the choices made by individuals is part of the definition ofA) microeconomics. B) positive economics.C) macroeconomics. D) normative economics.Answer: A2- Microeconomics focuses on all of the following EXCEPTA) the effect of increasing the money supply on inflation.B) the purchasing decisions that an individual consumer makes.C) the effect of an increase in the tax on cigarettes on cigarette sales.D) the hiring decisions that a business makes.3- Studying the determination of prices in individual markets is primarily a concern ofA) negative economics. B) microeconomics.C) positive economics. D) macroeconomics4- The analysis of the behavior of individual decision-making units is the definition ofA) microeconomics. B) macroeconomics.C) positive economics. D) normative economics.1- Macroeconomics is the branch of economics that studiesA) prices of individual goods. B) important, as opposed to trivial, issues.C) the economy as a whole D) the way individual markets work. 2- Which of the following is a macroeconomic issue?A) how federal government budget deficits affect interest ratesB) the cause of a decline in the price of peanut butterC) what determines the amount a firm will produceD) how a rise in the price of sugar affects the market for sodas3- Which of the following is an issue in macroeconomics?A) the purchasing decisions that an individual consumer makesB) the effect of an increase in the tax on cigarettes on cigarette salesC) the hiring decisions that a business makesD) the effect of increasing the money supply on inflation4- Which of the following is a macroeconomic topic?A) why plumbers earn more than janitorsB) the reasons for the rise in average pricesC) whether the army should buy more tanks or more rocketsD) the reasons for a rise in the price of orange juice5- Which of the following is a macroeconomic issue?A) how federal government budget deficits affect interest ratesB) the cause of a decline in the price of peanut butterC) what determines the amount a firm will produceD) how a rise in the price of sugar affects the market for sodasNormative or positive 1- "Government should act to reduce poverty levels."A) This statement is an example of the fallacy of composition.B) This statement is an example of the post hoc fallacy.C) This statement is a normative statement.D) This statement is a positive statement.2- When Susan makes the statement, "The government should spend less money to take care ofnational parks," she isA) facing the standard of living tradeoff. B) testing an economic model.C) making a positive statement. D) making a normative statement.3- "All children should have health insurance" is aA) post hoc fallacy. B) normative statement.C) fallacy of composition. D) positive statement.4- "The rich should pay higher income tax rates than the poor" is an example of aA) normative statement. B) theoretical statement.C) positive statement. D) descriptive statement.5- Which of the following is an example of a normative statement?A) Government spending rose in the 1990s.B) Household consumption is the largest component of spending.C) Households should save more.D) The business sector is the primary source of jobs.6- "Government should act to reduce poverty levels."A) This statement is an example of the fallacy of composition.B) This statement is an example of the post hoc fallacy.C) This statement is a normative statement.D) This statement is a positive statement.7- In economics, positive statements are aboutA) macroeconomics, not microeconomics. B) the way things are.C) the way things ought to be. D) microeconomics, not macroeconomics2- A positive statement isA) valid only in the context of a model with simple assumptions.B) the result of a model's normative assumptions.C) about what ought to be.D) about what is.3- When Susan makes the statement, "The government should spend less money to take care of national parks," she is A) facing the standard of living tradeoff. B) testing an economic model. C) making a positive statement. D) making a normative statement.4- A positive statement isA) always true. B) one that does not use the ceteris paribus clause.C) about what is. D) about what ought to be.5- A positive statementA) is an affirming statement that is strongly worded.B) cannot be tested by checking it against the facts.C) is a statement of what is.D) is a statement of what ought to be.1- The term used to emphasize that making choices in the face of scarcity involves a cost isA) utility cost. B) opportunity cost.C) accounting cost. D) substitution cost.6- Economic modelsA) are essentially different from those used in other sciences. B) include all relevant facts.C) always use graphs. D) simplify reality.7) Economic modelsA) are better if they include most of the detail of the real economy. B) rely on simplification.C) do not address questions about the economy. D) make no assumptions that have not been proved.True or foals When you hear economists making positive statements, you know they have crossed the line from scientist to policy adviser. (Foals) xWhen economists are trying to explain the world, they are policy maker (Foals) xWhen economists are trying to change the world, they are policy advisor ( True)Scientists describe what is believed about how the world appears. ( True)Complete the following -THE CIRCULAR FLOW is a representing the organization of the economy decisions made by households and firms., interact in the markets for goods and services, where households are buyers and firms are sellers, and in the markets for the factors of production ,where firms are buyers and households are sellers. Economy is concerned with the production, consumption, distribution and investment of goods and services.Economics is the social science that analyzes the production, distribution, and consumption of goods and servicesThe terms supply and demand refer to the behavior of people. as they interact with one another in markets. Buyers determine demand. And Sellers determine supply A competitive market is a market in which there are many buyers and many sellers so that each has a negligible impact on the market price quantity demanded the amount of a good that buyers are willing and able to purchasewhen one good reduces the demand for another good, the two goods are called Substitutes and Complements are often pairs of goods that are used together In every economic system, choices must be made because resources are limited and our wants are unlimitedA shift in the supply curve is called a “change in supply, a movement along a fixed demand curve is called a “change in the quantity demanded.”a shift in the demand curve is called a “change in demand, a movement along a fixed supply curve is called a “change in the quantity supplied. A change in the price represents a movement along the demand curve, whereas a change in income shifts the demand curve. A change in the price represents a movement along the demand curve, whereas a change in Prices of related goods shifts the demand curve. A change in the price represents a movement along the demand curve, whereas a change in expectation shifts the demand curve.A change in the price represents a movement along the demand curve, whereas a change in number of buyers shifts the demand curve.Draw and explain a production possibilities frontier for an economy that produces milk and cookies. What happens to this frontier if disease kills half of the economy’s cow population?A SHIFT IN THE PRODUCTIONPOSSIBILITIES FRONTIER. The effects of a drought shifts the production possibilities frontier inward, decreasing the quantity of cookies economy can produce Quantity producedMilk4000 300020000 500 750 1000 cookis (Quantity )Draw a production possibilities frontier for a society that produces food and clothing. Show an efficient point, an inefficient point, and an infeasible point. Show the effects of a droughtclothes4000 300020000 A SHIFT IN THE PRODUCTIONPOSSIBILITIES FRONTIER. The effects of a drought shifts the production possibilities frontier inward, decreasing the quantity of food economy can produce*inevasible *efficient Inefficient effect of drought Food 100 200 300 400Maria can read 20 pages of economics in an hour. She can also read 50 pages of sociology in an hour. She spends 5 hours per day studying. a. Draw Maria’s production possibilities frontier for reading economics and sociology.b. What is Maria’s opportunity cost of reading 100 pages of sociology? Economic 20pages /h 100 pages / 5 hours Sociology 50pages /h 250 pages /5hours Economic Maria opportunity coast of 100 pages of sociology = 40 pages (100p) of economics (80p) (60p) (40p) (20p) 0 sociology (250pages) 0 50 100 150 200 250 Use a production possibilities frontier to describe the idea of “efficiency.” and " growth" B A Computers4000 3000 20000 1000A SHIFT IN THE PRODUCTIONPOSSIBILITIES FRONTIER. Aneconomic advance in the computer industry shifts the production possibilities frontier outward, increasing the number of cars and computers the economy can produce Cars 250 500 720 750 1000Calculate and graph the market demand curve PriceDemand 1Demand 2Demand 3Market demand10258159691227810131639714172051618212463522252857109876500 15 20 25 30 35 40 45 50 55 60Market demand price quantity Define and graph the the equilibrium price and quantity of wheat?PRICE of wheatQUANTITYDEMANDEDQUANTITYSUPPLIED$1101 million15 million1002129049806670836101Explain the difference between the two diagrams 2.01.5 Demand Supply Surplus Supply Demand 2.5 2.0 Price of ice cream shortage 4 7 10 quantity 4 7 10 quantity Quantity demanded Quantity supplied Quantity supplied Quantity demanded (b) In (a), there is a surplus, Because the market price of $2.50 is above the equilibrium price, the quantity supplied (10 )exceeds the quantity demanded (4). Suppliers try to increase sales by cutting the price, and this moves the price toward its equilibrium level. In (b), there is a shortage. Because the market price of $1.50 is below the equilibrium price, the quantity demanded (10 cones) exceeds the quantity supplied (4). With too many buyers chasing too few goods, suppliers can take advantage of the shortage by raising the price. What does the “invisible hand” of the marketplace do?Every individual by pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. Participants in the economy are motivated by self-interest and that the “invisible hand” of the marketplace guides this self-interest into promoting general economic well-being.What is a market? _ What does it mean for a market to be competitive?A market is a group of buyers and sellers of a particular good or service. A competitive market a market in which there are many buyers and many sellers so that each has a negligible impact on the market price WHAT DETERMINES THE QUANTITY AN INDIVIDUAL DEMANDS?Price when the price of a good rises, the quantity demanded of the good falls.Income : an increase in income leads to an increase in demand of normal good an increase in income leads to a decrease in demand of inferior goodPrice of related goods increase in the price of one leads to an increase in the demand for the other are calledsubstitutes. an increase in the price of one leads to an decrease in the demand for the other are called complementtastes people’s tastes because tastes are based on historical and psychological forces that are beyond the realm of economicsExpectations expectations about the future may affect the demand for a good or service today. For example, if you expect to earn a higher income next month, you may be more willing to spend some of your current savingsE explain " economics is a since and art Science is a theoretical aspect: Study of cause and effect of inflation or deflation falls within the purview of ScienceArt is a practical aspect : In economics we study consumption, production, public finance etc, which provide practical solutions to our daily economic problems. Framing appropriate and suitable monetary and fiscal policies to control inflation and deflation is an ArtWhat are the two subfields into which economics is divided? Explain what each subfield studies. MicroeconomicMacroeconomicMicro comes from Greek word mikros, meaning “small”Macro: comes from Greek word, makros, meaning “large”focuses on the individual partsanalyzes the entire economy and issues affectingHow households and firms make decisions and how they interact in specific marketsThe study of the national economy and the global economy as a whole.Focuses on big picture and ignores fine detailsMention the main theoretical and applied Advantages of EconomicsTheoretical Advantages: - Increase in Knowledge, - Developing Analytical AttitudePractical Advantages : Significance for the consumers, Significance for producers, Significance for workers, Significance for politicians, Significance for academicians, Significance for administrators, Effective man-power planning, Helpful in fixing price, Solving distribution problemsWHAT DETERMINES THE QUANTITYAN INDIVIDUAL SUPPLIES?Price : Other things equal, when the price of a good rises, the quantity supplied of thegood also rises.Input Prices If input prices rise substantially, the supply of good fall down."Technology: the advance in technology raised the supply. Expectations: supply today may depend on your expectations of the future. if you expect the price of a good to rise in the future, you will supply less to the market today ................
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