Home Assignment 1
1)
What is the economics? 1
This video explains that economics is more than finance and investment; it's the study of how
people make choices under scarcity. It examines how individuals and societies allocate limited
resources to satisfy their needs and wants, focusing on decision-making, trade-offs, and the
effects of these choices on the economy.
Positive and Normative Statements
Throughout the video, it is shown that positive analysis is about facts that can be tested, while
normative analysis is opinion-based and can't be proven. Both are important for making policies:
positive analysis provides the facts, and policymakers use those facts, along with their opinions,
to create policies.
What is the economics? 2
This video presents economics is about dealing with limited resources and unlimited wants.
People and societies have to make choices on how to use their resources. These choices are
based on comparing benefits and costs. Specialization allows people to focus on tasks they are
good at, making production more efficient. Trade lets people exchange what they produce for
what they need. Finally, economies of scale help reduce costs as production increases.
Model & Theories
The video describes about economic models are simplified versions of reality that help us
understand and predict economic behavior. They focus on the most important details and leave
out the rest. Just like a map shows only the roads you need, a model shows only the key parts of
an economy. Too much detail can be confusing, so models give just enough information to help
us make decisions. A good model helps us reach our goal, like understanding how the economy
works.
Circular flow diagram
The video explains the circular flow model, which illustrates how money, resources, goods, and
services move within an economy. In this model, households own resources like land, labor, and
capital, which they sell to businesses in exchange for income. Businesses use these resources to
produce goods and services, which they then sell to households. The model shows how money
flows between households and businesses, driving the economy in a continuous cycle.
Production Possibilities Frontier
The video introduces the concept of the production possibilities frontier (PPF), a simple
economic model that illustrates the limits of what an economy can produce given its resources.
Using the example of a fictional island nation called Econ Isle, which only produces two goods
—widgets and gadgets—the video explains that the PPF shows the maximum combinations of
these goods that can be produced with available resources. The PPF highlights two key lessons:
Scarcity limits production: Because resources are limited, not all wants can be met.
Opportunity cost: To produce more of one good, Econ Isle must produce less of another,
demonstrating the trade-offs involved in economic decisions.
Macroeconomics vs Microeconomics
The video discusses the difference between microeconomics and macroeconomics, explaining
that the distinction lies in the scope of analysis. Microeconomics focuses on the choices made by
individual entities, such as a single product, price, consumer, household, business, or industry. In
contrast, macroeconomics looks at the economy as a whole, considering broader topics like a
country's total income (GDP), inflation, the entire business sector, and overall unemployment.
2)
What is opportunity cost, and how does it influence decision-making in economics?
3)
1) The United States is considered a rich country because Americans can choose from an
abundance of goods and services. How can there be scarcity in a land of abundance?
Scarcity exists because resources are limited, and not all wants can be satisfied, even with plenty
of goods and services available.
2. Give two examples for each of the following: (a) an intangible good, (b) a tangible good, (c) a
bad.
o (a) Intangible good: Education, healthcare.
o (b) Tangible good: Laptop, car.
o (c) Bad: Pollution, traffic noise.
3. Give an example of something that is a good for one person and a bad for someone else.
Loud music is enjoyable for concert-goers but a nuisance to nearby residents.
4. What is the difference between the resource labor and the resource entrepreneurship?
Labor is work done for wages. Entrepreneurship involves taking risks to organize resources and
create products.
5. Can either scarcity or one of the effects of scarcity be found in a car dealership? Explain your
answer.
Limited cars can create scarcity, leading to higher prices and competition among buyers.
6. Explain the link between scarcity and each of the following: (a) choice, (b) opportunity cost,
(c) the need for a rationing device, (d) competition.
o (a) Choice: Scarcity forces decisions.
o (b) Opportunity cost: Choosing one thing means giving up another.
o (c) Rationing device: Price helps allocate scarce resources.
o (d) Competition: Scarcity leads to competition for resources.
7. Is it possible for a person to incur an opportunity cost without spending any money? Explain.
Yes, choosing to spend time on one activity means giving up another, even without spending
money.
8. Discuss the opportunity costs of attending college for four years. Is college more or less costly
than you thought it was? Explain.
Yes, choosing to spend time on one activity means giving up another, even without spending
money.
9. Explain the relationship between changes in opportunity cost and changes in behavior.
Higher opportunity costs lead to changes in behavior, like choosing work over college if earnings
rise.
10. Smith says that we should eliminate all pollution in the world. Jones disagrees. Who is more
likely to be an economist, Smith or Jones? Explain your answer.
Jones is more likely an economist, recognizing that completely eliminating pollution isn't
realistic due to trade-offs.
