Homework
Questions
Economics provides a range of choices to decision makers regarding the outcomes or impacts of alternative courses of action. Describe the two types of economic analysis (see table on page 3). Come up with three questions of your own as examples for each type of analysis, which relates to your community.
The two types are positive and normative analysis. Positive analysis predicts the consequences of alternative action by asking “What is?” and What Will be?”
Positive
If two volunteer fire departments merge, which station and trucks will they use?
If minimum wage goes up, how many post office workers will be out of a job and how many post offices will close?
If the tax rate goes up, how many people will cut the amount that they are spending on goods?
Normative
Should the government step in and stop the merge?
Should the government change the minimum wage rate?
Should the government change tax rates?
Define in your own words and use examples to illustrate:
Opportunity cost
Define: cost of an alternative that must be omitted in order to follow a certain action.
Example: picking weather you should go and party (could fail test) or stay home and study (could pass test)
Ceteris paribus
Define: Latin meaning that one variable may affect other variable.
Example:
Marginal change
Define: small one-unit change in value
Example: studying for 1 extra hour with higher grade on test by 5 points
Scarcity
Define: resources people use to make merchandise that is restricted.
Example:
Production possibilities curve
Define: curve that shows the likely combinations of products that market can produce
Example: comparing tons of corn per year with tons of copper per year
Principle of diminishing returns
Define: when a company tries to manufacture additional output in presented production by increasing the amount of personnel working for the company.
Example: Lawn Care Company could start with 5 people