Global Macroeconomics: Briefly explain the various economic principals

Definitions:

  1. Absolute Advantage
  2. Ceteris Paribus
  3. Comparative Advantage
  4. Complement
  5. Deadweight Loss
  6. Demand
  7. Efficiency
  8. Equilibrium
  9. Equity
  10. Inferior Good
  11. Normal Good
  12. Normative Statement
  13. Opportunity Cost
  14. Positive Statement
  15. Price Ceiling
  16. Price Floor
  17. Shortage
  18. Substitute
  19. Supply
  20. Surplus

Chapter 1 Review Questions:

  1. Briefly explain the various economic principals
  2. If a policy results in higher benefits than costs, should it be implemented?
  3. If a policy results in higher costs than benefits, should it be implemented?
  4. Briefly explain why people quantify costs and benefits differently.
  5. List the factors of production
  6. How are positive and normative statements used when discussing whether a policy should or should not be implemented
  7. Write an example of a positive statement
  8. Write an example of a negative statement

Chapter 2 Review Questions:

  1. What does it mean to be producing a level of production that is inside the production possibilities frontier?
  2. What does it mean to be producing a level of production that is on the production possibilities frontier?
  3. Is a level of production outside the production possibilities frontier achievable?
  4. How can the production possibilities frontier expand?
  5. How do you determine if an economy has an absolute advantage over another economy?
  6. How do you determine if an economy has a comparative advantage over another economy?
  7. When two economies trade with each other, how do you determine which good each economy should specialize in?

Chapter 3 Review Questions:

  1. Identify the major factors that affect demand. For each, identify how it could cause demand to increase and how it could cause demand to decrease.
  2. Identify the major factors that affect supply. For each, identify how it could cause supply to increase and how it could cause supply to decrease.
  3. Suppose demand increases. Immediately after the change, will there be a shortage or a surplus in the market? Holding all else equal, how will equilibrium price and quantity be affected?
  4. Suppose demand decreases. Immediately after the change, will there be a shortage or a surplus in the market? Holding all else equal, how will equilibrium price and quantity be affected?
  5. Suppose supply increases. Immediately after the change, will there be a shortage or a surplus in the market? Holding all else equal, how will equilibrium price and quantity be affected?
  6. Suppose supply decreases. Immediately after the change, will there be a shortage or a surplus in the market? Holding all else equal, how will equilibrium price and quantity be affected?
  7. Suppose supply and demand decrease simultaneously.
    1. If the change in supply is greater than the change in demand, how will equilibrium price and quantity be affected?
    1. If the change in demand is greater than the change in supply, how will the equilibrium price and quantity be affected?
    1. If it is unknown whether the change in demand or the change in supply was the greatest, how will the equilibrium price and quantity be affected?
  8. Suppose supply and demand increase simultaneously.
    1. If the change in supply is greater than the change in demand, how will equilibrium price and quantity be affected?
    1. If the change in demand is greater than the change in supply, how will the equilibrium price and quantity be affected?
    1. If it is unknown whether the change in demand or the change in supply was the greatest, how will the equilibrium price and quantity be affected?
  9. Suppose supply increases at the same time demand decreases.
    1. Immediately after the change, will there be a shortage or surplus in the market?
    1. If the change in supply is greater than the change in demand, how will equilibrium price and quantity be affected?
    1. If the change in demand is greater than the change in supply, how will the equilibrium price and quantity be affected?
    1. If it is unknown whether the change in demand or the change in supply was the greatest, how will the equilibrium price and quantity be affected?
  10. Suppose supply decreases at the same time demand increases.
    1. Immediately after the change, will there be a shortage or surplus in the market?
    1. If the change in supply is greater than the change in demand, how will equilibrium price and quantity be affected?
    1. If the change in demand is greater than the change in supply, how will the equilibrium price and quantity be affected?
    1. If it is unknown whether the change in demand or the change in supply was the greatest, how will the equilibrium price and quantity be affected?

Chapter 4 Review Questions:

  1. If the price is above your willingness-to-pay, will you buy it? What benefit(s) do you receive?
  2. If the price is below your willingness-to-pay, will you buy it? What benefit(s) do you receive?
  3. If the price is above your willingness-to-sell, will you sell the good? What benefit(s) do you receive?
  4. If the price is below your willingness-to-sell, will you sell the good? What benefit(s) do you receive?
  5. List the reasons that may cause a market to fail to be efficient
  6. Are markets efficient when they produce the largest benefit to consumers, to suppliers, or to all parties?
  7. When are price ceilings effective?
  8. Why would the government implement a price ceiling?
  9. Is a market with an effective price ceiling efficient? Why or why not?
  10. When are price floors effective?
  11. Are markets with an effective price floor efficient? Why or why not?
  12. Why would the government implement a price floor?
  13. Are efficient markets fair?
  14. What creates a deadweight loss in a market?
  15. Consider the following graph.
H
I
A
F
P2
P1
D0
Price
QE
PE
S0
Quantity
 
Q1
G
C
B
J
L
K
M
  1. Assume the price is PE
    1. Identify the area(s) that represent the consumer surplus
    1. Identify the area(s) that represent the producer surplus
    1. Identify the area(s) the represent the total surplus
    1. Assume the price is P1
      1. Identify the area(s) that represent the consumer surplus
      1. Identify the area(s) that represent the consumer surplus that was lost because the market is not in equilibrium
      1. Identify the area(s) that represent the producer surplus
      1. Identify the area(s) that represent the producer surplus that was lost because the market is not in equilibrium
      1. Identify the area(s) that represent the total surplus
      1. Identify the area(s) that represent the deadweight loss
    1. Assume the price is P2
      1. Identify the area(s) that represent the consumer surplus
      1. Identify the area(s) that represent the consumer surplus that was lost because the market is not in equilibrium
      1. Identify the area(s) that represent the producer surplus
      1. Identify the area(s) that represent the producer surplus that was lost because the market is not in equilibrium
      1. Identify the area(s) that represent the total surplus
      1. Identify the area(s) that represent the deadweight loss

Formulas:

  1. Market Demand
  2. Market Supply
  3. Consumer Surplus
  4. Producer Surplus
  5. Opportunity Cost
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