1. What is the scarcity principle?

The scarcity principle is to have more of one good thing usually means having less of another.
2. What is the cost benefit principle?
Take no action unless its marginal benefit is at least as great as its marginal cost.
3. How to solve simultaneous equation.
Re-writing the two equations as one in top of the others. Then subtractcting the terms from
each side of one equation from the corresponding terms of the other equation and then solving
the A equation and then the B equation.
4. How to read and interpret a production possibility curve graphically.
For an economy that produces two goods, the production possibilities curve describes the
maximum amount of one good that can be produced for every possible level of production of
the other good. Attainable points are those that lie on or within the curve and efficient points
are those that lie along the curve. The slop of the production possibilities curve tells us the
opportunity cost of producing an additional unit of the goods measured along the horizontal
axis.
5. What factors can change a production possibility curve?
Factors affecting production possibility curves are: increase in the amount of productive
resources available such as labor and capital equipment or from improve in knowledge and
technology that tender existing resources more productive.
6. How to read and interpret a supply and demand curve with and without excess supply and
excess demand graphically.
The market for a good consists of the actual and potential buyers and sellers of that good. For
any given price, the demand curve shows the quantity that demanders would be willing to buy
and the supply curve shows the quantity that suppliers of the good would be willing to sell.
Suppliers are willing to sell more at higher (supply curves slopes upward) and demanders are
willing to buy less at higher prices *demand curves slope downward).
7. How to read and interpret shifts in supply and demand graphically.
For Demand, Decrease in the price of complements to good and services,
Increase in the prices of substitutes for the goods and services,
Increase in income,
Increase preference by demanders for the good,
Increase in the population of potential buyers and expectation of higher prices in the future
shifts the demand curve upward or rightward and when these factors move in the opposite
direction then the demand curve will shift left.
For supply, decrease in the cost of material, labor or other inputs used in the production,
Improve in the technology that reduces the cost of producing the good or services,
Improve in the weather
Increase in the number of suppliers
Expectation of lower price in the future causes an increase (rightward or downward) shift in
supply while when these factors move in opposite directions the supply will shift left.

8. What is efficiency principle?

Efficiency principle occurs when all goods and services are produced and consumed at their
respective socially optimal levels.
9. What is equilibrium principle?
Equilibrium principle is a situation where a market in equilibrium leaves not unexploited
opportunities for individuals but may not exploit all gains achievable though collective action.
10. How to calculate price elasticity of demand.
The price elasticity of demand for a good is the percentage change in the quantity demanded
that results from a 1 pecent change in its price. Mathemticall, the elasticity of demand at a point
along a demand curve is equal to (p/q) x (1/slope), where p and q represent price and quantity
and 1/slope is the reciprocal of the slop of the demand curve at that point.
11. What are the determinant of price elasticity of demand?
The price elasticity of demand for a good or service tends to be larger when substists for the
good are more readily available, when the goods share in the consumers budget is larger and
when consumers have more time to adjust to a change in price.
12. How to read and interpret price elasticity of demand graphically.
Price elasticity of demand at any point along a straight line demand curve is the ratio of the
price to quantity at that point times the reciprocal of the slop of the demand curve.
13. How to calculate price elastic of supply.
Its calculated as the percentage change in the quantity supplied that occurs in response toa 1
percent change in price as (changes in Q/Q)/(changes in P/P) where P is the price and Q is the
quantity demanded.
14. What is the law of demand?
The law of demand indicates people do less of what they want to do as the cost of doing rises.
15. What is the rational spending rule?
The rational spending rules states that spending should be allocated across goods so that the
marginal utility per dollar is the same for each good.
16. How do firm maximizes profit in a perfectly competitive market?
The perfectly competitive firm’s faces a horizontal demand curve for its product, meaning that it
can sell any quantity it wishes at the market price. In the short run, the firms’s goal is to choose
the level of output that maximizes its profit. It will accomplish this by choosing the output level
for which its marginal cos is equal to the market price of its product, provided that price exceeds
average variable cost. The perfectly completive firms supply curve is the portion of its marginal
cost curve that lies above its average variable cost curve. At the profit maximizing quantity, the
firm’s profit is the product of that quantity and the difference between price and average total
cost.

17. What is the law of supply?

The law of the supply states that suppliers/producers offer more of a product for sale when its
prices rises.

18. What are the three types of profit?

Account profit= (total revenue-explicit costs)
Economic profit= (total revenue-explicit costs-implicit costs)
Normal profit=accounting profit-economic profit

19. What are the five sources of market power?

 The five sources of market power are:
 Exclusive control over important inputs
 Patents and Copyrights
 Government Licenses or Franchises
 Economic of Scale and Natural Monopolies
 Network Economies

20. How does a monopoly maximize profit?

The monopolist maximum profit by choosing the output level at which marginal revenue equals
marginal cost. But whereas marginal revenue equals the market price for the perfectly
competitive firm, its always less than the market price for monopolist. A monopolist will earn an
economic profit only if price exceeds average total cost at the profit maximizing level of output
21. What are the three element of a game?
The three element of the game are: The players, the list of possible actions available to each
player and the payoffs the players receive for each possible combination of strategies.