Key Concepts in Economics: Homework Assignment

Posted on Jan 10, 2025 in Economy

ECON 1312 Homework Assignment #1

1. What do economists mean when they discuss “scarcity”?

Scarcity refers to the need for factors of production such as capital, land, labor, and entrepreneurship, in order to establish a new business.

Define Economics and Describe its Branches of Study

Economics is the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices.

Economics is divided into two main parts:

• Microeconomics
• Macroeconomics

Microeconomics is the study of choices that individuals and businesses make, the way those choices interact in markets, and the influence of governments.

Macroeconomics is the study of the performance of the national and global economies.

China’s Population is About 1.5 Billion, While the Population of the United States is About 300 Million. This Fact Means that China has Much More Human Capital than the U.S. Does. True or False? Explain Your Answer.

It depends on the human capital involved in the production of goods and services. Statistics show that in the U.S., agriculture accounts for less than 1 percent of total U.S. production, manufactured goods for 22 percent, and services for 77 percent.

In China, agriculture accounts for 11 percent of total production, manufactured goods for 49 percent, and services for 40 percent. From these statistics, it can be inferred that China has more human capital than the U.S.

Explain What Entrepreneurship is and Why it is Considered a Factor of Production.

Entrepreneurship is the human resource that organizes land, labor, and capital. It is considered a factor of production because entrepreneurs are the drivers of economic progress. They develop new ideas about what and how to produce, make business decisions, and bear the risks that arise from these decisions.

Your Friend is Preparing for This Exam and in Your Practice Session Makes the Following Statement: “Instead of Attending Microeconomics Class for Two Hours, Kiki Could Have Played Tennis or Watched a Movie. Therefore, the Opportunity Cost of Attending Class is the Tennis and the Movie She Had to Give Up.” Is Your Friend’s Analysis Correct or Not? Explain Your Answer.

Incorrect. The opportunity cost is the single best alternative foregone. If playing tennis is more valuable to Kiki than watching a movie, the opportunity cost of attending class is playing tennis. If watching a movie is more valuable, then the opportunity cost is the movie.

If the Government Raises the Tax on Cigarettes, What is the Effect on People’s Incentives and Choices?

If the government raises the tax on cigarettes, it is likely that some smokers will quit smoking.

What is the Difference Between Positive and Normative Statements?

A positive statement can be tested by checking it against facts.

A normative statement expresses an opinion and cannot be tested.

Two Economists Can Agree that Raising the Minimum Wage Creates Unemployment Yet One Might Argue that Raising the Minimum Wage is a Good Policy and the Other that it is a Bad Policy. Why Can This Difference Exist? Be Sure to Use the Terms Positive and Normative in Your Answer.

Raising the minimum wage might be considered a good policy because employees may be motivated to perform their jobs more effectively.

On the other hand, raising the minimum wage might be considered a bad policy because some employees may not work as effectively, knowing that they are less likely to be terminated.

The disagreement arises from differing normative views. One economist may prioritize the potential benefits of increased motivation (a normative judgment), while the other may focus on the potential negative consequences of reduced work effort (another normative judgment). Both economists can agree on the positive statement that raising the minimum wage can lead to unemployment, but they differ in their normative evaluations of whether this outcome is acceptable or desirable.

9. Why do economists use graphs?

Economists almost always use graphs to present the relationships between variables.

Explain Why the Production Possibilities Frontier Bows Outward.

The bowed-out shape of the PPF exists because certain factors of production are better suited to produce one good than they are to producing another good.

What Economic Concepts are Represented in the Production Possibilities Model?

Scarcity of resources, capacity constraints, efficiency of resource allocation, and production capacity.

When Economists State that the Opportunity Cost of a Product Increases as More of it is Produced, What Do They Mean? What is the Opportunity Cost?

It means that to produce more of one product, increasing quantities of other products must be given up due to the allocation of production factors.

Opportunity cost is the benefit or value of something that must be given up to acquire or achieve something else.

Draw a Production Possibilities Frontier Between Beans and Peas. Label the Unattainable Points, the Attainable Points with Fully Employed Resources, and the Attainable Points with Unemployed Resources.

Before the First Gulf War in 1991, Kuwait Had the Capacity to Produce a Certain Amount of Oil from its Oil Wells. After the War, it Found that Capacity Greatly Diminished Because the Oil Wells Had Been Set on Fire. Draw Kuwait’s PPF Before and After the War, Assuming that the Only Two Goods Produced are Oil and Food. Further Assume that Setting the Oil Wells on Fire Did Not Affect Kuwait’s Ability to Produce Food. Explain Why the PPF Before the War is Different from the PPF After the War.

The Table Below Lists Seven Points on the Production Possibilities Frontier for Pizza and CDs. Graph the PPF. What is the Opportunity Cost of Producing the First Four Pizzas? What is the Opportunity Cost of Producing the 10th Pizza. What is the Opportunity Cost of Producing the First 12 CDs? What is the Opportunity Cost of Producing the 26th CD?

• The opportunity cost of producing the first four pizzas is 2 CDs.
• The opportunity cost of producing the 10th pizza is 2 CDs.
• The opportunity cost of producing the first 12 CDs is 4 pizzas.
• The opportunity cost of producing the 26th CD is 4 pizzas.

Compare and Contrast Production Efficiency and Allocative Efficiency.

Efficiency generally describes the extent to which time, effort, or cost is well used for the intended task or purpose.

Allocative efficiency is a type of economic efficiency in which an economy produces only those types of goods and services that are most desirable to society and are also in high demand.

What Factors Generate Economic Growth?

1. Technological change
2. Capital accumulation

Why Does it Make Sense for Economies to Specialize According to Comparative Advantage and Trade?

It allows specialization based on comparative advantage and thus undoes this constraint, enabling each person to consume more than each person can produce.

“The United States is More Productive in Most Activities than are Most of Other Countries Because it has an Absolute Advantage in the Production of Most Goods and Services. Therefore We Should Restrict International Trade as it Only Benefits Other Countries at the Expense of the United States.” Comment on This Statement.

We should enforce international trade to restrict the conditions that the U.S. applies in the production of goods and services to ensure the best outcomes.

What is the Distinction Between a Money Price and a Relative Price?

The money price of a good is the amount of money needed to buy it.

The relative price of a good—the ratio of its money price to the money price of the next best alternative good—is its opportunity cost.

What is the Law of Demand and How Do We Illustrate it?

• Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded; and
• the lower the price of a good, the larger is the quantity demanded.

The demand curve illustrates the law of demand, which holds that the quantity demanded rises when the price falls.

What Does the Demand Curve Tell Us About the Price that Consumers are Willing to Pay?

The demand curve illustrates consumers’ willingness to pay by displaying the quantity they are willing to buy at a given price point.

Why Does Demand Not Change When the Price of a Good Changes with No Change in the Other Influences on Buying Plans?

Demand reflects the quantity that buyers are willing and able to buy at a range of prices, assuming other factors remain constant. A change in price leads to a change in quantity demanded, not a change in demand itself.

Define the Quantity Supplied of a Good or Service.

The quantity supplied of a good or service is the specific amount that sellers are willing and able to sell at a specific price.

What Does the Supply Curve Tell Us About the Producer’s Minimum Supply Price?

Price is usually a major determinant in the quantity supplied.

List All the Influences on Selling Plans, and for Each Influence Say Whether it Changes Supply.

1. Price of factors of production: A rise in the price of a factor of production decreases supply.
2. Price of related goods produced: The supply of a good increases if the price of a complement in production rises.
3. Expected future prices: If the expected future price of a good rises, the supply of the good decreases.
4. The number of suppliers: The larger the number of suppliers of a good, the greater is the supply of the good.
5. Technology: Advances in technology increase supply.

What is the Equilibrium Price of a Good or Service? Over What Range of Prices Does a Shortage Arise? What Happens to the Price When There is a Shortage?

The equilibrium price is the price at which the quantity demanded equals the quantity supplied. A shortage arises when the price is below the equilibrium price. When there is a shortage, the price will be forced up.

Why is the Equilibrium Price the Best Deal Available for Both Buyers and Sellers?

At the equilibrium price, buyers’ and sellers’ plans agree, and the price does not change. It represents the best balance between the quantity demanded and the quantity supplied at a mutually agreeable price.