- •1. Define and explain 10 principles of economies
- •2. Describe two simple models — the circular flow and the production possibilities frontier. Draw the graphs Economic Models
- •3. Difference between micro and macro economics.Role of economists in making policy
- •4 . Absolute advantage and comparative advantage.
- •5. How comparative advantage explains the gains from trade
- •11.Describe the role of prices in market economies
- •12.The meaning of the elasticity of demand.Determine the elasyicity of Demand
- •13.Explain the ways of computing the price elasticity of demand
- •14.Explain the relationship between total revenue and the price elasticity of demand
- •Why Elasticity Matters
- •15.Explain the meaning and types of the elasticityof Supply. Determine the elasticity of Supply
- •16. Describe the concept of elasticity in three very different markets: the market for wheat, the market for oil, and the market for illegal drugs.
- •17. Describe the different types of controls on prices. Give the real world examples of these two kinds of price controls.
- •18. Explain how price ceilings affect market outcomes. Draw the graphs.
- •19. Explain how price floors affect market outcomes. Draw the graphs.
- •21. The meaning of tax. Explain how taxes on buyers affect market outcomes.
- •22. How does elasticity affect the burden of a tax? Justify your answer using supply-demand diagrams.
- •23. Explain how to define and measure consumer surplus.
- •24. Explain how to define and measure producer surplus.
- •25. Using a demand-supply diagram, explain and identify the following areas:consumer surplus, producer surplus, total surplus.
- •26. The meaning of total surplus in a market, and describe why might it be a good measure of economic well-being. Using a demand-supply diagram, show the areas representing total surplus
- •27. Name two types of market failure. Explain why each may cause market outcomes to be inefficient
- •28. Explain how taxes reduce consumer and producer surplus.
- •29. The meaning and causes of the deadweight loss from a tax.
5. How comparative advantage explains the gains from trade
Comparative Advantage and Trade
The Rancher’s opportunity cost of an ounce of potatoes is ¼ an ounce of meat, whereas the Farmer’s opportunity cost of an ounce of potatoes is ½ an ounce of meat.
The Rancher’s opportunity cost of a pound of meat is only 4 ounces of potatoes, while the Farmer’s opportunity cost of an ounce of meat is only 2 ounces of potatoes...
…so, the Rancher has a comparative advantage in the production of meat but the Farmer has a comparative advantage in the production of potatoes.
Comparative advantage and differences in opportunity costs are the basis for specialized production and trade.
Whenever potential trading parties have differences in opportunity costs, they can each benefit from trade.
Benefits of Trade
Trade can benefit everyone in a society because it allows people to specialize in activities in which they have a comparative advantage.
11.Describe the role of prices in market economies
Price has the most central roles in a market economy. It is the determinant demand, supply, and inflation. Lets just say that price is the heart of market economy. if the price goes up fast, inflation happens (just like someone's blood pressure shooting through the roof) and if prices go down, well thats when there is little certainty in the market and bad things happen again. If prices are stable with little inflation, then everyone lives happy.
As you study economics, you will learn that prices are the instrument with which the invisible hand directs economic activity. In any market, buyers look at the price when determining how much to demand, and sellers look at the price when deciding how much to supply. As a result of the decisions that buyers and sellers make, market prices reflect both the value of a good to society and the cost to society of making the good. Smith’s great insight was that prices adjust to guide these individual buyers and sellers to reach outcomes that, in many cases, maximize the well-being of society as a whole.
12.The meaning of the elasticity of demand.Determine the elasyicity of Demand
price elasticity of demand
a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price Demand for a good is said to be elastic if the quantity demanded responds substantially to changes in the price. Demand is said to be inelastic if the quantity demanded responds only slightly to changes in the price. The price elasticity of demand for any good measures how willing consumers are to buy less of the good as its price rises. Because the demand curve reflects the many economic, social, and psychological forces that shape consumer preferences, there is no simple, universal rule for what determines the demand curve’s elasticity. Based on experience, however, we can state some rules-of-thumb about what influences the price elasticity of demand