Problem Set #1.docx.pdf - 1 Problem Set Unit 1 1 A Scarcity...

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1 Problem Set Unit 1 1. A. Scarcity describes the economic principle that society has an unlimited amount of demand, but has limited resources in that it is unable to produce at the quantity that is demanded. As a result of this, society must make choices on how to use or distribute its limited resources. In order to make these choices, certain trade offs must be made, in that to acquire resources, others must be given up. B. A price of a good is the monetary value that a buyer sells the good for, and the consumer purchases it for. Conversely, a cost is the monetary value of production that the seller pays to produce the good. The definition of an opportunity cost is the most desirable alternative that is given up when you make a choice. Put simply, it is what you give up in order to pursue another option. C. Differences a. Consumer goods are goods that are created for the consumer’s direct consumption. An example of a consumer good is a smoothie from Jamba Juice, because this product was created for the consumer to directly drink. An example of a capital good is a good that, though benefiting the consumer, is purchased for indirect consumption. An example of this would be a blender. A blender is a capital good because it creates the consumer good.
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2 b. A positive statement is a statement that is based on facts and does not include bias or personal views and judgement. An example of positive statements can often be taken from the news broadcaster BBC, because its coverage presents facts in a relatively unbiased manner. Conversely, a normative statement is one that includes judgements and bias. An example of normative statements can often be found in liberal-leaning talk shows such as “The Daily Show” with Trevor Noah, which is a show that presents news in a satirical fashion and tends to lean towards the left, and so its news is also presented with that perspective. c. Productive Efficiency describes a situation in which products are being produced in a way that is not costly, or in other words, uses all the resources available. This would be any point ON the production possibilities curve. On the other hand, Allocative Efficiency is a situation in which products are being produced on a point on the curve that is relative to the wants and needs of society. It is the optimal production point on the curve, and depends on what society wants.
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