Review Questions 1

1. Give three examples of important trade offs in your life:

I traded my free time for an elective vet science class, I gave up gluten in exchange for being
healthy, and finally I traded hanging out with family for time at work.
2. What items would you use to calculate the cost of a DisneyLand vacation?
I would include the gas money or flight tickets, the cost of food, the cost of the hotel rooms, and
the cost of merchandise.
3. Is the marginal benefit of a glass of water large or small?
Small
4. Why should policymakers consider incentives?
Incentives affect the way people feel about things and their motivation to do them
5. Why isn't trade among countries not like a game with winners and losers?
Because trade is a deal between parties, not a competition
6. What does the invisible hand of the marketplace do?
Firms have a guided process where separate firms act as if they are guided by an invisible hand,
thus leading them to good market outcomes.
7. Explain the two main causes of market failure and give examples
Externalities which are the impact of one single person's behavior on a bystander. An example is
pollution.
8. Why is productivity important?
Productivity is important because it gives people initiative to work which helps the economy
grow.
9. What is inflation and what are its causes?
Inflation is the rapid rise of prices and it happens when the government prints too much money.
10. How is inflation and unemployment related?
Inflation means people need more money and so they want raises that the companies cannot
afford.
QUIZ #1 ANSWERS
1. The study of how society manages its scarce resources
2. Total cash expenditure needed to go to the movie plus the value of your time
3. One that incrementally alters an existing plan
4. The ability of free markets to reach desirable outcomes despite the self interest of market
participants
5. All of the above
6. A central bank creating an excessive amount of money

Review Questions 2
1. How is economics a science?
Because the objective follows the scientific method

2. Why do economists make assumptions?

Because of the unpredictable nature of the economy
3. Should an economic model describe reality exactly?
No but they try to get as close to it as possible
4. Name a way that your family interacts in the factor market and the product market
My mother participates in the factor market because she has a passion for biology so she works
in the agriculture industry. My mother also interacts with the product market because she sells
her wine that she makes.
5. Name one economic interaction that is not covered by the simplified circular flow
diagram
The role of government or international trade
6. 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 cows?
If half the cows die, so does half the company's production value
7. Use a production possibilities frontier to describe the idea of “efficiency.”
Efficiency is any point on the line of production possibility frontier.
8. What are the two subfields into which economics is divided? Explain what each
subfield studies
The two subfields of economics are macroeconomics and microeconomics.
Macroeconomics is the study of demand and how to deal with things like unemployment
or inflation. Microeconomics is studying the smaller interworking of economics like
supply and demand.
9. What is the difference between a positive and normative statement?
If a statement is positive it means it is correct or accurate, while if a statement is
normative it is an opinion and not fact.
10. Why does economics sometimes offer conflicting advice to policymakers?
Because economists sometimes disagree with policymakers.

QUIZ #2 ANSWERS
1. A simplified representation of some aspect of the economy.
2. Households are sellers, firms are buyers
3. Feasible but not efficient
4. Move the economy along the production possibilities frontier
5. The influence of government budget deficit on economic growth
6. Law X will reduce national income

Review Questions #3ECON hoemw

 1. Under what conditions is the production possibilities frontier linear rather than
bowed out?
Only when there is a constant opportunity cost
2. Explain the difference between absolute advantage and comparative advantage
The difference is that absolute advantage uses fewer inputs to produce goods and
comparative advantage focuses on lower cost for producing goods.
3. Give an example in which one person has an absolute advantage in doing
something but another person has a comparative advantage
When a person is selling a product at a lower cost than anyone else and still making a
profit
4. Is absolute advantage or comparative advantage more important for trade?
Explain your reasoning using the example in your answer to Question 3.
Absolute advantage is more important for trade because you need the goods to be of
quality to make people want to trade with you again.
5. If two parties trade based on comparative advantage and both gain, in what
range must the price of the trade lie?
The price lies in between each person's opportunity cost
6. Why do economists oppose policies that restrict trade among nations?
Because sometimes foreign trade can disrupt the market.

QUIZ #3 ANSWERS
1. Ron in washing, neither in mowing
2. Ron in washing, neither in mowing
3. They both obtain consumption outside their production possibilities frontier
4. Those goods in which other nations have a comparative advantage
5. China will export shirts, the united states will export aircrafts
6. There are no gains from trade in this situation