ECON 104 EXAM 1 Questions and Answers
100% Solved
11. What is the difference between positive and normative economics? 1. Positive→ can
be verified and tested scientifically using real world data and economic models
2. Normative→ what should happen it cannot be tested
12. What do we mean by Opportunity cost? Ceteris paribus? 1. Opportunity cost→ the
highest valued alternative that must be given up to engage in an activity
2. Ceteris Paribus→ a latin phrase that means while certain variables change, "all other things
remain unchanged"
13. What is the intuition (meaning) behind the production possibilities frontier (PPF)? What
points are unattainable? Efficient? Attainable? Which points reflect full employment of
resources? 1. PPF→ shows the maximum number of combinations of two products that
may be produced, ceteris paribus
2. Unattainable points→ outside the curve
3. Efficient→ points that lay on the curve
4. Inefficient points→ points inside the curve
14. Why are points on the curve said to be efficient? What does this imply?: Answer: You
cannot produce more of one good, without giving up some production of the other good.
,15. Why does the production possibilities curve display a bowed-out shape (i.e., concave to the
origin)? 1. Increasing opportunity cost
2. As you move along the ppf, the opportunity cost increases as you move to the right
3. Some resources are more efficient in producing some goods then others, as you use more of
one resource, you will run out quicker and have to use less efficient goods
16. What is the law of increasing opportunity cost? How is it related to the production
possibilities curve? 1. As an economy moves down along PPF, it can experience
increasing opportunity costs
2. Some resources are better suited for producing certain goods
17. What are the assumptions behind the production possibilities curve? How would
technological advance, an increase in the capital stock (i.e., investment) or an increase in the
labor force affect the production possibilities curve? 1. Assumpitions
1. Resources are fixed
2. Full employment of resources
3. Technology unchanged
2. Economic growth → ability of an economy to produce increasing quantities of goods and
services
1. Occurs when there is an increase in the resource base or technological advance
18. Why does an outward shift in the PPF represent economic growth? 1. Resources or
technology are effecting either one or both variables thus shifting the PPF outward
, 19. What are the two most important sources of economic growth? 1. Technological
advancements or Increase in capital stock (machines equipment robots)
1. = increase in worker productivity=output/hr
2. Why? Supply curve moves right= lower prices
1. Economic growth and the standard of living of an economy increase
20. Productivity is defined as ______________. 1. Output per hour, how much you make
21. What is society's tradeoff between producing more investment goods versus consumer goods
in the present? 1. Investment goods→ capital goods
2. Consumer goods
1. (on both axis of ppf)
3. Live for today—make more consumer goods (or all)
4. We can produce more goods and services in the future if we make more investment goods and
less consumer goods
5. Using technology to do more things, better the future with the kind of goods we produce.
22. What is the law of demand? 1. There is an inverse relation between the price of a good
and quantity demanded
23. How could a change in the number of buyers, income, expectations of future prices, or a
change in tastes and preferences (i.e., non-price determinants of demand) affect the demand
curve? Affect equilibrium price and quantity? 1. It would shift the demand
2. This would either increase or decrease demand
100% Solved
11. What is the difference between positive and normative economics? 1. Positive→ can
be verified and tested scientifically using real world data and economic models
2. Normative→ what should happen it cannot be tested
12. What do we mean by Opportunity cost? Ceteris paribus? 1. Opportunity cost→ the
highest valued alternative that must be given up to engage in an activity
2. Ceteris Paribus→ a latin phrase that means while certain variables change, "all other things
remain unchanged"
13. What is the intuition (meaning) behind the production possibilities frontier (PPF)? What
points are unattainable? Efficient? Attainable? Which points reflect full employment of
resources? 1. PPF→ shows the maximum number of combinations of two products that
may be produced, ceteris paribus
2. Unattainable points→ outside the curve
3. Efficient→ points that lay on the curve
4. Inefficient points→ points inside the curve
14. Why are points on the curve said to be efficient? What does this imply?: Answer: You
cannot produce more of one good, without giving up some production of the other good.
,15. Why does the production possibilities curve display a bowed-out shape (i.e., concave to the
origin)? 1. Increasing opportunity cost
2. As you move along the ppf, the opportunity cost increases as you move to the right
3. Some resources are more efficient in producing some goods then others, as you use more of
one resource, you will run out quicker and have to use less efficient goods
16. What is the law of increasing opportunity cost? How is it related to the production
possibilities curve? 1. As an economy moves down along PPF, it can experience
increasing opportunity costs
2. Some resources are better suited for producing certain goods
17. What are the assumptions behind the production possibilities curve? How would
technological advance, an increase in the capital stock (i.e., investment) or an increase in the
labor force affect the production possibilities curve? 1. Assumpitions
1. Resources are fixed
2. Full employment of resources
3. Technology unchanged
2. Economic growth → ability of an economy to produce increasing quantities of goods and
services
1. Occurs when there is an increase in the resource base or technological advance
18. Why does an outward shift in the PPF represent economic growth? 1. Resources or
technology are effecting either one or both variables thus shifting the PPF outward
, 19. What are the two most important sources of economic growth? 1. Technological
advancements or Increase in capital stock (machines equipment robots)
1. = increase in worker productivity=output/hr
2. Why? Supply curve moves right= lower prices
1. Economic growth and the standard of living of an economy increase
20. Productivity is defined as ______________. 1. Output per hour, how much you make
21. What is society's tradeoff between producing more investment goods versus consumer goods
in the present? 1. Investment goods→ capital goods
2. Consumer goods
1. (on both axis of ppf)
3. Live for today—make more consumer goods (or all)
4. We can produce more goods and services in the future if we make more investment goods and
less consumer goods
5. Using technology to do more things, better the future with the kind of goods we produce.
22. What is the law of demand? 1. There is an inverse relation between the price of a good
and quantity demanded
23. How could a change in the number of buyers, income, expectations of future prices, or a
change in tastes and preferences (i.e., non-price determinants of demand) affect the demand
curve? Affect equilibrium price and quantity? 1. It would shift the demand
2. This would either increase or decrease demand
