Task:
• Explain how to make decisions by comparing marginal costs and marginal benefits
• Define opportunity cost and explain its relationship to economic reasoning
• Differentiate between micro and macro economics
• Demonstrate opportunity cost with a PPF
• Relate the concept of comparative advantage to the PPF
• State the principle of increasing marginal opportunity cost
• State how, through comparative advantage and trade, countries can consume beyond their PPF
• State six roles of government (posted online)
1. Provide a stable set of institutions/rules
2. Promote effective and workable competititon
3. Correct for externalities (one kind of market failure)
4. Ensure economic stability and growth
5. Provide public goods (nonexcludable and nonrival: parks, educational system, legal system (codes and laws), transportation infrastructure, etc, fire and police)
6. Adjust for undesirable market results (redistributing income through taxes and soc security; alcohol, tobacco and firearms control; merit goods – subsidies for culture, hospice, red cross)
• State the law of demand and draw a demand curve from a demand table
• Explain the importance of substitution to the laws of supply and demand
• Distinguish a shift in demand from a movement along a demand curve
• State the law of supply and draw a supply curve from a supply table
• Distinguish a shift in supply from a movement along a supply curve
• Explain how the law of demand and the law of supply interact to bring about an equilibrium
• Show the effect of a shift in demand and/or supply on equilibrium price and quantity
• State the limitations of supply and demand analysis
• Demonstrate the effect of a price ceiling and a price floor on a market
• Explain the effect of taxes and tariffs on equilibrium price
• Explain the effect of a third-party payer system on equilibrium price and quantity Graphs
Two variable graphs: independent and dependent; causal or correlated; x- y- coordinates Curves: linear and nonlinear; inverse relationship; direct relationship (neg and pos) Slope: linear, nonlinear; maximum and minimum points: delta y/delta x; rise over run; y=mx+b; neg and pos; tangent
Numerical graphs: time series, scatter plots, pie charts, bar graphs Shifts in curves
Problems with graphs: truncated; omitted variables; reverse causality
Nine basic principles of economics:
1. Resources are scarce.
2. The opportunity cost of the next best alternative is the real economic cost of an activity
3. How much to produce requires marginal analysis (the optimal choice is that amount where the MB=MC)
4. Individuals make choices based on rational self interest.
5. There are gains from trade through specialization.
6. Markets move toward equilibrium (invisible hand).
7. Resources are used such that costs are minimized in a free market.
8. Markets lead to technical and allocative efficiency.
9. If there is a market failure – the government can intervene to produce the desired outcome.
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