Macsg02 - 2 The Economic Problem Scarcity and Choice C hapter objectives Identify the three basic economic questions Distinguish between absolute

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33 2 The Economic Problem: Scarcity and Choice C hapter objectives: 1. Identify the three basic economic questions. 2. Distinguish between absolute advantage and comparative advantage. Relate comparative advantage to the theory that individuals can gain from specialization and exchange. 3. Explain why a production possibility frontier has a negative slope and why the slope depicts the concept of opportunity cost. 4. Interpret what is depicted by a production possibility frontier. 5. Explain why increasing opportunity costs occur and how this is shown in the production possibility frontier diagram. 6. Identify ways in which economic growth may occur. 7. Identify and distinguish how economic systems differ in their solutions to the three basic questions. State the “mistakes” to which an unregulated market system is prone. BRAIN TEASER: You graduate from college and are offered three jobs (Job A, Job B, and Job C). Assume that they are identical in all respects (duties, benefits, promotion prospects, and so on) except that the salaries differ, as shown below: Job A $150,000 Job B $120,000 Job C $100,000 First, which of the three jobs would you choose? (No, you can’t have all three!) Because you have made a choice, you have incurred an opportunity cost. What is the opportunity cost of your job choice? Comparing benefits and costs, have you made a rational choice? Why or why not? Suppose, for a moment, that you select Job B. What is the cost of that choice? Comparing benefits and costs, have you made a rational choice? Why or why not? Now suppose that you select Job C. What is the cost of that choice? Again, is Job C a rational choice? Why or why not? SOLUTION: The answer to this and subsequent brain teasers will be found after our discussion of the learning objectives and before the Practice Tests.
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34 Study Guide to Principles of Macroeconomics ECONOMICS IN PRACTICE: This chapter’s textbook example of economics in action in the real world centers on opportunity costs, in particular, the value we place on time. Refer to page 28 in the textbook. First, think about the costs of preparing a meal. To be sure, the price of the ingredients is one factor, but time is another. The textbook makes the point that we are often willing to trade dollars (and perhaps taste) for convenience. Can you think of two or three other examples of the same sort of trade-off in your own life? What do you consider in your decision-making process? ANSWER: Answers will vary, of course, but fast food is an obvious example. How much more convenient it is to go through the drive-through that spend time shopping and cooking. If you use paper plates on a picnic, you’re making the same sort of calculation. A trip to a (typically high-price) convenience store is another example. Many students who sign up for online classes cite “convenience” as the main reason for preferring this form of learning experience. Finally, how much more convenient is it to “google” a subject rather than visit your campus library’s book stacks?
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This note was uploaded on 02/13/2010 for the course ECON 1102 taught by Professor Wissink during the Spring '09 term at Cornell University (Engineering School).

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Macsg02 - 2 The Economic Problem Scarcity and Choice C hapter objectives Identify the three basic economic questions Distinguish between absolute

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