AREC 202 Midterm – Kroll Questions and Answers 100% Solved

AREC 202 Midterm – Kroll Questions and Answers 100% Solved What is economics, and what does it have to do with your life? The study of how people make choices under conditions of scarcity What is the difference between microeconomics and macroeconomics? Macro: the study of national economies and policies the government uses to improve performance. Micro: the study of choice under scarcity and its implications for behaviors of prices/quantities for an individual market. What are the opportunity costs in general? How are they being calculated in a table with two countries and two goods? he opportunity cost of a good is what one would sacrifice in order to make a different good. The opportunity cost for Australia to make one computer is three boomerangs. What is a sunk cost? a cost that has already been committed and cannot be recovered What are marginal costs? the additional cost of the next unit produced What does "marginal" mean (as in marginal costs, marginal benefits, marginal willingness-to- pay, etc.)? Additional or one more unit How is the optimal level of an activity determined, using (marginal) benefits and (marginal) costs? When the maximum amount of marginal benefits outweighs the marginal costs What is the Production Possibilities Curve? A graph the describes the maximum amount of one good that can be produced for every possible level of production. Can a PPC be upward-sloping? No Which points in the PPC graph are efficient/attainable/not attainable? Attainable but not efficient: anything below the line.Efficient: anything on the line.Not attainable: anything above the line. What are comparative and absolute advantage? Comparative: the producer who has a lower opportunity cost of producing that good.Absolute: the producer is more productive in producing a good. In a world with just two goods and two countries, can a country have an absolute advantage for both goods? Yes In a world with just two goods and two countries, can a country have a comparative advantage for both goods? No, only one country can have the comparative advantage in a good. What are consequences of people/countries having a comparative advantage (consequences for specialization and trade)? Comparative advantage drives countries to specialize in the production of the goods for which they have the lowest opportunity cost Everyone wants you good and wants you to make their good. You may be the only person who can make that good and that can cause you to have enemies. You cannot trade with everyone Why and when can specialization and trade make everybody involved better off? Because they can all trade and benefit from one another. Why can the consumption possibilities of a country be larger than its production possibilities if it specializes and trades? Trade between two agents or countries allows the countries to enjoy a higher total output and level of consumption than what would have been possible domestically. If specialization combined with trade is such a great thing, how come some people don't like it? Adds competition to local businesses. If u.s. companies are trading for European steel, then American steelmakers are losing business. What is a market? How is price determined in a competitive market? A competitive market consists of many (potential) buyers and sellers. A price is determined through the market Equilibrium. When the quantity of a good equally the quantity supplied. What does "buyer and sellers are price-takers" mean? Buyers and sellers regarding the market price of the product as a fixed number, beyond their control Given individual willingness-to-pay schedules, do you know how to derive a market demand curve? The graph looks like stairs going down. Each stair is someones willingness to pay for a certain quantity demanded. Consumer surplus is area under someones stair to the price. Given individual cost schedules, do you know how to derive a market supply curve? The graph looks like stairs going up. Each stair is the lowest price at which a seller is willing to sell their good, and the quantity supplied at the price. Producer surplus is the area above someones stair to the price. What is the difference between the horizontal and vertical interpretations of the demand and supply curve? Horizontal interpretation is the demand curve, or relationship between price and quantity demandedVertical interpretation