Econ Study Guide Essay example

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Chapter 1: 6 questions—
Description/definition of economics and scarcity;
- Economics is the study of how people, businesses, governments, and other organizations make choices when there is scarcity. Scarcity means that the resources we use to produce goods and services are limited. consequences of scarcity;
-Since human wants are unlimited, the trade-offs associated with making choices:
• You have a limited amount of time. If you take a part-time job, each hour on the job means one less hour for study or play.
• A city has a limited amount of land. If the city uses an acre of land for a park, it has one less acre for housing, retailers, or industry.
• You have limited income this year. If you spend $17 on a music CD, that’s $17 less you have to spend on other products or to save.

differentiate between normative or positive economic questions;
- positive analysis, which answers the question “What is?” or “What will be?” and normative analysis, which answers the question “What ought to be?”
An example of a positive question is “Why do athletes make more money than schoolteachers?” A related normative question would ask “Should athletes make more money than schoolteachers?” Another positive question is “How does a monopoly affect market outcomes?” A related normative question is
“Should society regulate monopolies?”

graphical analysis from appendix;
- positive relationship, meaning that the two variables move in the same direction, or a negative relationship, meaning that the two variables move in opposite directions. slope of a curve tells us by how much a change in one variable affects the value of another variable.
You can find the slope by dividing the vertical difference between two points (the rise) by the horizontal difference between the two points (the run). A graph of two variables with a positive relationship will have a positive slope. A graph of two variables with a negative relationship will have a negative slope.
The slope answers questions in economics such as, “By how much does quantity demanded fall when the price of a good increases by $1?”

identify examples for each of the 3 questions that every economy must answer;
- What products do we produce? Should a coffee shop sell breakfast food and lunch food along with coffee?
• How do we produce the products? Should the coffee shop hire bakers to make breakfast pastries or should they buy pastries from someone else?
• Who consumes the products? Should prices determine who buys coffee or should the coffee shop use some other mechanism?

calculate a percent change.
- Percentagechange= (newvalue-initial value) x 100/initial value
In some cases, we will use the midpoint formula:
Percentagechange= (new value-initial value) x100/average value where the average value is:
(newvalue+initialvalue)/2

Chapter 2: 6 questions—
Definition and application of the marginal principle;
- Produce one more unit of output? Purchase one more slice of pizza? This is what is known as a marginal change. To make a good decision, we compare the marginal benefit, the additional benefit resulting from a small increase in some activity, with the marginal cost, the additional cost resulting from a small increase in some activity.
If the marginal benefit is greater than the marginal cost, we want to increase the level of the activity.
Doing so will increase our total well-being by the difference between the marginal benefit and the marginal cost. If the marginal benefit is less than the marginal cost, we want to reduce the level of the activity. If they are equal, we are at the optimal amount of the activity.
A restaurant might use the marginal principle when deciding whether to open for breakfast in addition to lunch. Since many of the costs of the restaurant (rent, payments for equipment) are fixed, the only additional cost of opening for breakfast would be the food, labor, and utilities needed to open earlier.
If the revenue
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