Principles of economics
Universiteit Leiden, Bachelor International Business Law, 2017-2018
Week 1: Introduction, Demand and Supply
Chapter 1 (p. 24-25): Qs. 2, 5, 8, 10, 11; Pb. 4, 5, 6
Question 2
“Buy 2, get 1 free.” Explain why the “1 free” is free to the buyer but not to society.
It’s free to you, but someone (society) bears the costs. The resources are (privately or collectively)
owned by members of society. Resources have been used in producing the third unit. These
resources could have been used to produce something else (opportunity costs).
Question 5
Marginal analysis
Marginal analysis is the comparison of marginal benefit and marginal costs, for decision making.
Marginal benefits is the extra benefit of consuming 1 more unit of output of some good or service.
Marginal cost is the extra cost of producing 1 more unit of output.
Coming to class. A benefit could be a higher grade, the cost would be time spend, which could be
used earning a wage.
Question 8
Economic resources
Economic resources are the land, labor, capital and entrepreneurial ability used in the production of
goods and services. The categories used to classify them are:
Land
o Natural resources (‘gifts of nature’) used to produce goods and services.
Labor
o The physical and mental talents and efforts of people used to produce goods and
services.
Capital
o Human-made resources (buildings, machinery, and equipment) used to produce
goods and services.
Entrepreneurial ability
o The human talent that combines the other resources to produce a product, make
strategic decisions, and bear risks.
They are also called factors of production or inputs, because they are combined to produce goods
and services.
, Question 10
Marginal-benefit and marginal-cost curves
They look like a cross. Optimal output is when MB = MC (where the two lines cross). If current
output is such that marginal costs exceeds marginal benefit, fewer resources should be allocated to
this product.
Question 11
Production possibilities curve
A production possibilities curve is a curve showing the different combination of goods and services
that can be produced in a fully employed economy, assuming the available supplies of resources
and technology are fixed.
Quality of education increases
The productivity rises, the curve moves outward.
The number of unemployed workers increases
It means no full employment, the curve doesn’t move because the curve assumes full
employment.
Universiteit Leiden, Bachelor International Business Law, 2017-2018
Week 1: Introduction, Demand and Supply
Chapter 1 (p. 24-25): Qs. 2, 5, 8, 10, 11; Pb. 4, 5, 6
Question 2
“Buy 2, get 1 free.” Explain why the “1 free” is free to the buyer but not to society.
It’s free to you, but someone (society) bears the costs. The resources are (privately or collectively)
owned by members of society. Resources have been used in producing the third unit. These
resources could have been used to produce something else (opportunity costs).
Question 5
Marginal analysis
Marginal analysis is the comparison of marginal benefit and marginal costs, for decision making.
Marginal benefits is the extra benefit of consuming 1 more unit of output of some good or service.
Marginal cost is the extra cost of producing 1 more unit of output.
Coming to class. A benefit could be a higher grade, the cost would be time spend, which could be
used earning a wage.
Question 8
Economic resources
Economic resources are the land, labor, capital and entrepreneurial ability used in the production of
goods and services. The categories used to classify them are:
Land
o Natural resources (‘gifts of nature’) used to produce goods and services.
Labor
o The physical and mental talents and efforts of people used to produce goods and
services.
Capital
o Human-made resources (buildings, machinery, and equipment) used to produce
goods and services.
Entrepreneurial ability
o The human talent that combines the other resources to produce a product, make
strategic decisions, and bear risks.
They are also called factors of production or inputs, because they are combined to produce goods
and services.
, Question 10
Marginal-benefit and marginal-cost curves
They look like a cross. Optimal output is when MB = MC (where the two lines cross). If current
output is such that marginal costs exceeds marginal benefit, fewer resources should be allocated to
this product.
Question 11
Production possibilities curve
A production possibilities curve is a curve showing the different combination of goods and services
that can be produced in a fully employed economy, assuming the available supplies of resources
and technology are fixed.
Quality of education increases
The productivity rises, the curve moves outward.
The number of unemployed workers increases
It means no full employment, the curve doesn’t move because the curve assumes full
employment.
