Economic Basic Idea of Supply and Demand

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Economic Basic Idea of Supply and Demand

By | September 2010
Page 1 of 5
Circular Flow model of economy provides the organization of the course

Basic concepts and perspectives questions

Why do economists use models to try to understand markets and society? Pick any model in the class (PPF model, model of supply and demand, model of consumer choice, model of the firm, model of monopoly, model of oligopoly, etc), describe it, including the basic assumptions behind it, and then discuss/illustrate something of significance that the model helps you understand about how the economy works.

Marginal thinking is central to all economic analysis. Explain what marginal thinking is, defining all necessary terms and concepts, and then give an example of how marginal thinking was used in your econ 185 class.

Another central idea in economics is opportunity cost. Explain what opportunity cost is, defining all necessary terms and concepts, and then give an example of how opportunity costs was used in your econ 185 class.

Equilibrium was also a major idea in the economic models you learned about. Economists usually assume that any economic system will move towards equilibrium. Explain the concept of equilibrium. How does the supply and demand model use the concept of equilibrium?

PPF and applications

Construct a PPF table that illustrates an increasing opportunity cost. Draw it on an appropriately labeled graph.

The PPF model was used to illustrate several key points. Using the diagram you constructed, illustrate and explain the following concepts: opportunity cost, limited resources, efficiency.

The PPF model also helped you understand economic growth. What causes economic growth according to the PPF model? Illustrate and explain using the same type of diagram you drew above.

The advantages of trade were discussed using the PPF model. Using this model, explain why economists view trade as a win-win situation. In your answer, be sure to distinguish between absolute advantage and comparative advantage.

Consumer...