Deck 1: Limits, Alternatives, and Choices

Question 1

What is a brief definition of economics? What are the conditions that give rise to this definition?

Answer 1

It is the social science concerned with the efficient use of scarce resources to achieve the maximum satisfaction of economic wants Economic wants are many and diverse People seek many goods and services to satisfy their wants Society uses productive resources to produce goods and services that meet these wants Unfortunately,the economic wants of society exceeds the productive capacity of the economy to produce the goods and services to satisfy those wants

Question 2

Distinguish between microeconomics and macroeconomics.

Answer 2

Microeconomics deals with individual economic units such as industries,firms,households,and with individual markets,particular prices,and specific goods and services.Macroeconomics,on the other hand,deals with the economy as a whole,including such major aggregates as the household,business,and governmental sectors and with totals for the economy.

Question 3

Below are six statements.Indicate whether each one pertains to microeconomics (MIC)or macroeconomics (MAC).
(a)"The inflation rate in Canada hit its lowest level in the last twenty years".
(b)"The profits of BCE rose 20 percent during the past quarter".
(c)"A drought has occurred in the Prairies.The prices for barley are expected to rise sharply".
(d)"The nation's economy grew at an annual rate of 3.7 percent in the final quarter of the year".
(e)"The trade surplus in Canada was $4 billion last month".
(f)"General Motors plans to spend $800 million on a new automobile plant".

Answer 3

(a), (d),and (e)are macro; (b), (c),and (f)are micro.

Question 4

The distinguished economist Kenneth Boulding stated: "Theories without facts may be barren,but facts without theories are meaningless".Explain what he meant.

Question 5

What do economists mean when they say that "there is no free lunch"? Give another example to which this statement applies.

Question 6

What are the key economic concepts that pertain to interactions among individuals?

Question 7

Below are six statements.Identify whether each is a positive or normative statement.
(a)The minimum wage should be increased so low-income workers can earn a living wage.
(b)The unemployment rate is too high and should be reduced through government actions.
(c)The rate of inflation was about 2 percent last year,an all time low for the past decade.
(d)The government should take action to break up the monopoly power of Air Canada.
(e)Interest rates should be lower in Canada so that people can afford to build a home.
(f)The Federal government achieved a budget surplus for the first time in thirty years.

Question 8

"Economists are scientists and therefore should not become involved in making value judgments which policy formulation necessarily entails".Do you agree?

Question 9

What is utility and what is its relevance to rational behaviour?

Question 10

What were the approximate average incomes of Canadians and Liberians in 2010?

Question 11

Explain the importance of the ceteris paribus or "other-things-equal" assumption.

Question 12

What are the key economic concepts that pertain to the individual?

Question 13

Identify whether each of the following is a positive or normative statement.
(a)Should tuition fees increase,fewer students would obtain a post-secondary education.
(b)The Prime Minister announced that Canada is the best place in the world to live.

Question 14

"Bad theories are abstract and therefore unrealistic;good theories are fully realistic and fit all the facts".Evaluate.

Question 15

Why have the last few years been an exciting time to study macroeconomics?

Question 16

What are the key economic concepts that pertain to the economy as a whole?

Question 17

What does it mean to say that theories,principles,and models are "purposeful simplifications"?

Question 18

Give one example of a positive economic statement and one example of a normative economic statement.

Question 19

What are the three interrelated features of the economic perspective?

Question 20

"Economics cannot be scientific because it is based upon the value judgment that 'more (output)is better'".Do you agree?

Question 21

What is meant by "society's economic problem"?

Question 22

"The relative scarcity of resources makes the operation of any economy a matter of choosing between alternatives".Explain.

Question 23

What four basic functions does the entrepreneur perform for the economy?

Question 24

Look at the following production possibilities curve illustrating the possibilities in Sluggerville for producing bats and/or peanuts with the existing level of resources and technology.

Question 25

What changes must occur for the potential total output of the economy to grow?

Question 26

What do economists mean when they say that economic resources or factors of production are scarce or limited in supply?

Question 27

What is meant by the "the individual's economic problem"?

Question 28

Explain and evaluate: "If resources were infinitely abundant in relation to the demand for them,the economic problem would dissolve in a sea of affluence".

Question 29

"The two cornerstones of economics are the scarcity of resources and the multiplicity of wants.True economy consists of deriving maximum want satisfaction from available resources".Explain.

Question 30

List the four resource categories and give a brief description of each.

Question 31

Explain how increasing opportunity costs are reflected graphically in the production possibilities curve.How would the curve appear if opportunity costs were constant?

Question 32

What variables are used to determine the individual's budget line?

Question 33

The production possibilities table below shows the hypothetical relationship between the production of food and clothing in an economy.
(a)What is the marginal opportunity cost of producing the second unit of clothing?
(b)What is the total opportunity cost of producing two units of clothing?
(c)What is the marginal opportunity cost of producing the third unit of clothing?
(d)What is the total opportunity cost of producing three units of clothing?

Question 34

A production possibilities table for two products,corn and paper,is found below.Usual assumptions regarding production possibilities are implied.Corn is measured in tons,and paper is measured per unit.

Question 35

An economy consists of five workers,who can produce either fish or fruit.The following table shows the daily output of each worker.

Question 36

Describe the Greek Debt Crisis,and explain its relation to the Economic Problem?

Question 37

Explain the relationship between full employment of resources and full production.

Question 38

An economy consists of five workers,who can produce either fish or fruit.The following table shows the daily output of each worker.

Question 39

How do income changes affect the position of the budget line?

Question 40

A production possibilities table for two products,grain and airplanes,is found below.Usual assumptions regarding production possibilities are implied.Grain is measured in tons and airplanes are measured in units of 1,000.
(a)Using the below graph construct a production possibilities curve from this information placing grain on the vertical axis and airplanes on the horizontal axis.

Question 41

Describe the adjustments in the production possibilities curves in each of the following situations for the Canadian economy.
(a)the economy moves from full employment into a deep recession
(b)the economy makes great strides in eliminating discrimination
(c)the end of the Cold War leads to cuts in military spending
(d)the government significantly increases spending for health and education

Question 42

How do you determine the slope of a nonlinear curve? Will the slope be the same along the curve? Explain.

Question 43

The value of the vertical intercept is $100 and the slope is 0.8 in a linear equation for consumption (measured on the vertical axis)and disposable income (measured on the horizontal axis).If disposable income is $1000,what is consumption? State the linear equation and show how you found the answer.

Question 44

Explain how each event affects production possibilities.
(a)The population becomes more educated over time as the number of high school dropouts falls and the number of college graduates rises.
(b)The unemployment rate declines from 8 to 6 percent of the labour force.
(c)Businesses and government are unable to solve a major computer problem,thus reducing economic efficiency and national output.
(d)Advances in telecommunications and new technology significantly contribute to economic growth over time.
(e)The Federal government decides to allocate more resources to national defence.

Question 45

Why do economists use graphs in their work?

Question 46

Show graphically on the below graph the expected relationship between investment spending and interest rates.Put investment expenditures on the horizontal axis and the rate of interest on the vertical axis;connect the points and label the curve "Investment demand".Describe this relationship between the rate of interest and investment expenditures.Describe the slope of the investment curve.

Question 47

One application of the production possibilities concept has been to explain the difference in growth patterns of a nation with a high level of investment (Alta)and an equivalent nation with a low level of investment (Zorn).Use the concept to explain why Alta's economic growth would be greater than that of Zorn over time.

Question 48

There are two sets of x,y points on a straight line in a two-variable graph with y on the vertical axis and x on the horizontal axis.What would be the linear equation for the line if one set of points was (0,12)and the other set was (12,36)?

Question 49

Describe the slope of a direct and an inverse relationship.

Question 50

Evaluate.Since the production possibilities curve can shift outward over time,it is possible for an economy to get more of a product without incurring an opportunity cost.

Question 51

Differentiate between the independent and dependent variables in an economic relationship.

Question 52

The production possibilities curve suggests that a nation cannot live beyond its means or production potential.Explain why international trade would cause this statement to be modified.

Question 53

Show graphically the relationships that you would expect to find between (a)student IQs and grade point averages (GPAs); (b)the price of a product and the amount consumers will purchase; (c)the temperature and the number of people at the swimming pool.Which of these are direct relationships and which are inverse? What considerations might change the expected relationships?

Question 54

Define what is meant by a positive or direct relationship between two variables and describe the line graph depicting such a relationship.

Question 55

In a two-dimensional graph showing the relationship between income and consumption in the economy,what is shown on the vertical axis and what is shown on the horizontal axis?

Question 56

Define what is meant by an inverse relationship between two variables and describe the line graph depicting such a relationship.