1: Principles of microeconomics

Question 1

What is scarcity? What do people do because of scarcity? How is this activity influenced?

Answer 1

1. Inability to satisfy all wants
2. People make choices
3. Choices depend on incentives (reward to encourage or penalty that discourages an action)

Question 2

Describe the what, how, and for whom goods and services get produced

Answer 2

What: What products/services are made
How: How factors of production are used to produce goods/services
For whom: Who gets the goods/services depending on income (Land-rent, Labor-wages, Capital-interest, Entrepreneurship-profit)

Question 3

A choice is a ? (Benefit & Cost)

Answer 3

Tradeoff. Comparing benefit and costs.
(Benefit: gain/pleasure a choice brings, determined by preferences.
Cost: Opportunity cost- the highest-valued alternative that must be given up)

Question 4

What is a margin? (MB & MC)

Answer 4

Where the “how much” choice is made.
Marginal benefit: Benefit of doing/getting one more
Marginal cost: Opportunity cost of doing/getting one more

Question 5

What is a positive statement? Normative statement?

Answer 5

Positive: What IS (can be tested with facts)
Normative: What OUGHT to be (cannot be tested)