Micro Economic

Topics: Economics, Supply and demand, Microeconomics Pages: 7 (1877 words) Published: February 18, 2013
No 3. What is inflation and what causes it?
= Inflation is an increase in the overall level of prices in the economy. Inflation happen because culprit is growth in the quantity o money when a government creates larges quantities of the nation’s money, the value of the money. No 5. Explain the two main causes of market failure and give an example of each!

= Externality, is the impact of one person’s action on the well being of a bystander
Example: pollution.
= Market power, is the ability of a single economic actor (or small group of acors) to have a substantial influence on market prices.
Example : if everyone in town needs water but there is only one well, the owner of the well is not subject to the rigorous competition with which the invisible hand normally keeps self interest in check.

2. Principles of economics-mankiew
CHAPTER 2 –question for review (38)
No. 1. Why do economists sometimes offer conflicting advice to policymakers?
= economist who advise policymakers offer conflicting advise either because of differences in scientific judgements or because of differences in values. At other times, economist are united in the advice they offer, but policymakers may choose to ignore it. No. 7. What are the subfields into which economics is divided? Explain what each subfield studies.

= microeconomics and macroeconomics.
Microeconomics is the study of how households and firms are make decisions and how they interact in makers.
Macroeconomics is the study of economi wide phenomena, including inflation, unemployment, and economic growth.

No 2. Give an example in which one person has an absolute advantage in doing something but another person has a comparative advantage.
= example of absolute advantage: in this case, time is the only input. So we can determine absolute advantage by looking at how much each type of production takes. The rancher has an absolute advantage both in producing meat and in producing potatoes because she requires less time than the farmer to produce a unit of either good. The rancher needs to input only 20 minutes to produce an ounce of meat, whereas the farmer needs 60 minutes. Similiarly, the rancher need only 10 minutes to produce an ounce of potatoes, whereas the farmer needs 15 minutes. Based on this information, we conclude that the rancher has the lower cost of producing potatoes, if we measure cost by the quantity of inputs.

=example of comparative advantage: the farmer has a lower opportunity cost of producing potatoes than the rancher. An ounce of potatoes cost the farmer only 14 ounce of meat, but it cost the rancher 12 ounce of meat. Conversely, the rancher has a lower opportunity cost of producing meat than the farmer: an ounce of meat costs the rancher 2 ounce of potatoes, but it cost the farmer 4 ounce of potatoes. Thus the farmer has a comparative advantage in growing potatoes, and the rancher has a comparative advantage in producing meat. No 4. Explain how absolute advantage and comparative advantage differ!

=the people who can produce good with the smaller quantity of inputs is said to have an absolute advantages in producing good. The person who has the smaller opportunity cost of producing the good is said to have a comparative advantage.

No. 6. Define the equilibrium of the market. Describe the forces that move a market toward its equilibrium
= Equilibrium is a situation in which the market price has reached the level at which quantity supplied equals quantity demanded. The behavior of buyers and sellers naturally drives markets toward their equilibrium. The activities of the many buyers and sellers automatically push the market price toward the equilibrium price. Once the market reaches its equilibrium, all buyers and...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • micro-economics Essay
  • Economics Essay
  • economics Essay
  • economics Essay
  • Essay on Economics Introduction
  • Essay on Micro-Economics Notes
  • Macro Economics Essay
  • Essay on Economic Eqilibriums

Become a StudyMode Member

Sign Up - It's Free