ECO 201 Miami University Exam 1
microeconomics - ANS-studies the behavior of individual businesses and consumers
and how they interact in markets. Assumptions play a big role in economics bc they
allow us to simplify the world
3 assumptions of economics - ANS-1) people are rational & use available info to make
decisions
2) people respond to incentives
3) people make decisions at the margin (the next or additional unit)
marginal cost - ANS-the cost of the next unit
marginal benefit - ANS-the benefit of the next unit
(if marginal benefit > marginal cost, it's a good choice)
Opportunity cost - ANS-includes the cost you directly pay PLUS the value of the
alternative activity you give up. includes all cost, both implicit & explicit. also is the best
measure of cost.
3 basic questions of economics - ANS-1) WHAT goods & services should be produced?
2) HOW will these goods & services be produced?
3) WHO will receive these goods & services?
3 types of economies - ANS--planned
-market based
-mixed
Planned economy - ANS-the government decides
Market-based economy - ANS-decisions are made by the market
Mixed economy - ANS-both markets & the government decide
What type of economy is the U.S.? - ANS-mixed economy, but mostly market
, allocative efficiency - ANS-a market is allocatively efficient if all goods & services are
produced where marginal benefit > marginal cost
production possibilities frontier (ppf) - ANS-a curve that shows the various combinations
of output the economy can produce given available resources and the existing
production technology
what do the points on the ppf represent? - ANS--points below PPF are possible but
inefficient
-points on PPF are at maximum efficiency
-points above PPF are currently unobtainable given the available resources &
technology
what happens to the ppf if more resources are discovered, a technological change that
affects BOTH goods, or if economic growth occurs? - ANS-the PPF will shift directly
outwards
what happens to the PPF if a technological change that affects only one good occurs? -
ANS-the PPF will rotate and therefore change it's slope
what does the slope of the PPF model represent? - ANS-the measure of the opportunity
cost
straight line PPF - ANS-the slope or opp cost is constant no matter where you are on
the line
Assume that resources are not specialized (not realistic), but if they are... - ANS-the opp
cost depends on the level of production and the curve will be bowed outwards
absolute advantage - ANS-when one country can produce more of a good than another
country
*unimportant in trade bc trade is based on comparative advantage*
comparative advantage - ANS-occurs when a country has a lower opportunity cost of
producing a good than another country
*forms the basis of trade*
when is trading beneficial - ANS-if both countries specialize in producing the good in
which they have a comparative advantage and trade for the other good, both nations
will be better off
microeconomics - ANS-studies the behavior of individual businesses and consumers
and how they interact in markets. Assumptions play a big role in economics bc they
allow us to simplify the world
3 assumptions of economics - ANS-1) people are rational & use available info to make
decisions
2) people respond to incentives
3) people make decisions at the margin (the next or additional unit)
marginal cost - ANS-the cost of the next unit
marginal benefit - ANS-the benefit of the next unit
(if marginal benefit > marginal cost, it's a good choice)
Opportunity cost - ANS-includes the cost you directly pay PLUS the value of the
alternative activity you give up. includes all cost, both implicit & explicit. also is the best
measure of cost.
3 basic questions of economics - ANS-1) WHAT goods & services should be produced?
2) HOW will these goods & services be produced?
3) WHO will receive these goods & services?
3 types of economies - ANS--planned
-market based
-mixed
Planned economy - ANS-the government decides
Market-based economy - ANS-decisions are made by the market
Mixed economy - ANS-both markets & the government decide
What type of economy is the U.S.? - ANS-mixed economy, but mostly market
, allocative efficiency - ANS-a market is allocatively efficient if all goods & services are
produced where marginal benefit > marginal cost
production possibilities frontier (ppf) - ANS-a curve that shows the various combinations
of output the economy can produce given available resources and the existing
production technology
what do the points on the ppf represent? - ANS--points below PPF are possible but
inefficient
-points on PPF are at maximum efficiency
-points above PPF are currently unobtainable given the available resources &
technology
what happens to the ppf if more resources are discovered, a technological change that
affects BOTH goods, or if economic growth occurs? - ANS-the PPF will shift directly
outwards
what happens to the PPF if a technological change that affects only one good occurs? -
ANS-the PPF will rotate and therefore change it's slope
what does the slope of the PPF model represent? - ANS-the measure of the opportunity
cost
straight line PPF - ANS-the slope or opp cost is constant no matter where you are on
the line
Assume that resources are not specialized (not realistic), but if they are... - ANS-the opp
cost depends on the level of production and the curve will be bowed outwards
absolute advantage - ANS-when one country can produce more of a good than another
country
*unimportant in trade bc trade is based on comparative advantage*
comparative advantage - ANS-occurs when a country has a lower opportunity cost of
producing a good than another country
*forms the basis of trade*
when is trading beneficial - ANS-if both countries specialize in producing the good in
which they have a comparative advantage and trade for the other good, both nations
will be better off
