Econ Final Exam
ECON 2020 – FINAL EXAM REVIEW
Exam 1 Review
Scarcity * A situation in which unlimited wants exceed the limited resources available to fulfill those wants. * Scarcity leads to CHOICE
Choice
* A situation caused by scarcity. * Leads to OPPORTUNITY COST
Rational Choice (Marginal Cost & Benefit) * Rational consumers will use all available information as they act to achieve their goals * Marginal Benefit – The benefit that arises from an increase in an activity * Marginal Cost – The opportunity cost that arises from an increase in that activity
Normative vs Positive * Normative – “what ought to be” (Subjective) * Positive – “What is” (Objective)
Specialization & Gains From Trade * Gains from trade are established through specialization and the division of labor. * Two examples include: “Stout vs Lager” and “The Pizzeria” * Having more employees at the pizzeria allows for each employee to be more productive and focus on what they specialize in. * It makes sense for one person to focus on producing “Stout vs Lager” if he can produce one of them at a lower opportunity cost.
Production Possibility Frontier * Is the boundary between those combinations of goods and services that can be produced and those that cannot. It is the frontier of all the possible outputs that can be produced. * Illustrates scarcity & increasing marginal opportunity cost * Why is it bowed outward? * Capital & Technology – We don’t use the same machines to produce the same goods. People have different skill sets. * Psychological – gains from trade
Demand & Supple Curves * 3 Criteria For Demand * The consumer has to WANT IT * AFFORD IT * PLAN TO BUY IT * 3 Criteria For Supply * Has resources and technology to produce * Can profit from producing * Plan to produce it & then sell it * Law of Demand * As Price Increases, Quantity
Exam 1 Review
Scarcity * A situation in which unlimited wants exceed the limited resources available to fulfill those wants. * Scarcity leads to CHOICE
Choice
* A situation caused by scarcity. * Leads to OPPORTUNITY COST
Rational Choice (Marginal Cost & Benefit) * Rational consumers will use all available information as they act to achieve their goals * Marginal Benefit – The benefit that arises from an increase in an activity * Marginal Cost – The opportunity cost that arises from an increase in that activity
Normative vs Positive * Normative – “what ought to be” (Subjective) * Positive – “What is” (Objective)
Specialization & Gains From Trade * Gains from trade are established through specialization and the division of labor. * Two examples include: “Stout vs Lager” and “The Pizzeria” * Having more employees at the pizzeria allows for each employee to be more productive and focus on what they specialize in. * It makes sense for one person to focus on producing “Stout vs Lager” if he can produce one of them at a lower opportunity cost.
Production Possibility Frontier * Is the boundary between those combinations of goods and services that can be produced and those that cannot. It is the frontier of all the possible outputs that can be produced. * Illustrates scarcity & increasing marginal opportunity cost * Why is it bowed outward? * Capital & Technology – We don’t use the same machines to produce the same goods. People have different skill sets. * Psychological – gains from trade
Demand & Supple Curves * 3 Criteria For Demand * The consumer has to WANT IT * AFFORD IT * PLAN TO BUY IT * 3 Criteria For Supply * Has resources and technology to produce * Can profit from producing * Plan to produce it & then sell it * Law of Demand * As Price Increases, Quantity