1. Please differentiate between "Microeconomics" and "Macro economics"?
2. Please discuss the fundamental economic theories of Adam Smith and David Ricardo.
3. Please discuss the basic theories of John Meynard Keynes and the Neoclassical Growth
theory.
4. Please discuss what are meant by "Marginal Utility" and the "Law of Diminishing Marginal
Utility"?
5. Please discuss the three basic problems of economic organization.
6. What do you understand of the so-called "demand and supply" in economics and their
respective elasticities?
7. What is meant by "income elasticity"? Please illustrate also.
8. Derive the answers for the blank spaces of the table below (separate pic). Please show their
respective and appropriate formulas. (Make a table)
Where Q is quantity; TFC, total fixed cost; TVC, total variable cost; TC, total variable cost;
AFC, average fixed cost; AVC, average variable cost, ATC, average total cost; and MC,
marginal cost.
Answers:
1. Microeconomics deals with individuals and business decisions. It focuses on supply and
demand, and other forces that determine price levels, making it a top-bottom approach.
The core of Microeconomics includes scarcity, efficiency, absolute advantage, and
comparative advantage.
Macroeconomics, on the other hand, analyzes the decisions made by countries and
governments. It looks at the economy as a whole, trying to determine its course and
nature, making it a top-down approach.
2. In his theory of Absolute Advantage, Adam Smith argued that gains from free trade
results from absolute advantage, in which all countries specialize in a certain good they
produce and trade it with each other. Absolute advantage can be the basis for large gains
from trade between producers of different goods with different absolute advantage. This
theory shows how countries can gain trade by specializing in producing and exporting the
goods that they can produce more efficiently than other countries.
David Ricardo’s theory of Comparative Advantage explains how countries can produce
and trade their less efficient products to other countries because of opportunity cost. This
theory argues that all actors can mutually benefit from voluntary trade. To understand
Comparative Advantage, one should have a solid grasp of the concept of opportunity
cost. Put simply, opportunity cost is the potential benefit that a country lost when trading
products with another country. The country with the lower opportunity cost holds this
type of advantage because this country thus has the smallest potential benefit which was
lost.
3. In his book "The General Theory of Employment, Interest, and Money", John Maynard
Keynes believed that to stimulate demand and pull the global economy out of depression,
2. Please discuss the fundamental economic theories of Adam Smith and David Ricardo.
3. Please discuss the basic theories of John Meynard Keynes and the Neoclassical Growth
theory.
4. Please discuss what are meant by "Marginal Utility" and the "Law of Diminishing Marginal
Utility"?
5. Please discuss the three basic problems of economic organization.
6. What do you understand of the so-called "demand and supply" in economics and their
respective elasticities?
7. What is meant by "income elasticity"? Please illustrate also.
8. Derive the answers for the blank spaces of the table below (separate pic). Please show their
respective and appropriate formulas. (Make a table)
Where Q is quantity; TFC, total fixed cost; TVC, total variable cost; TC, total variable cost;
AFC, average fixed cost; AVC, average variable cost, ATC, average total cost; and MC,
marginal cost.
Answers:
1. Microeconomics deals with individuals and business decisions. It focuses on supply and
demand, and other forces that determine price levels, making it a top-bottom approach.
The core of Microeconomics includes scarcity, efficiency, absolute advantage, and
comparative advantage.
Macroeconomics, on the other hand, analyzes the decisions made by countries and
governments. It looks at the economy as a whole, trying to determine its course and
nature, making it a top-down approach.
2. In his theory of Absolute Advantage, Adam Smith argued that gains from free trade
results from absolute advantage, in which all countries specialize in a certain good they
produce and trade it with each other. Absolute advantage can be the basis for large gains
from trade between producers of different goods with different absolute advantage. This
theory shows how countries can gain trade by specializing in producing and exporting the
goods that they can produce more efficiently than other countries.
David Ricardo’s theory of Comparative Advantage explains how countries can produce
and trade their less efficient products to other countries because of opportunity cost. This
theory argues that all actors can mutually benefit from voluntary trade. To understand
Comparative Advantage, one should have a solid grasp of the concept of opportunity
cost. Put simply, opportunity cost is the potential benefit that a country lost when trading
products with another country. The country with the lower opportunity cost holds this
type of advantage because this country thus has the smallest potential benefit which was
lost.
3. In his book "The General Theory of Employment, Interest, and Money", John Maynard
Keynes believed that to stimulate demand and pull the global economy out of depression,
