Answers To Quiz 2 (1).doc

Answers to the questions in Quiz 2: 1. Let y = f(x). Here, y is a function of x. That is, y is the dependent variable and x is the independent variable. The slope (= Δy/Δx) measures the responsiveness of the dependent variable (y) to a one-unit change in the independent variable (x). 2. (d). equity 3. Microeconomics is the study of how households and firms make decisions and how they interact in markets in the absence and presence of government policies. Macroeconomics is the study of how the economy as a whole works; for example, it examines the behavior of inflation, unemployment, and economic growth.

4. When the price increases (decreases) by $1, then the quantity demanded decreases (increases) by 10 units.

5 & 6.

7. A positive statement is an assertion about economic reality that can be supported or rejected by empirical data. For example, “faster growth in money supply leads to higher inflation.” A normative statement is an opinion and cannot be empirically shown to be true or false. For example, “the government should provide everyone with free health care.”

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8. The production possibilities frontier reveals Principle # 1 that individuals as well as society face tradeoffs, and Principle #2 that the cost of something is what you give up to get it (opportunity cost).

The slope = (∆clothing / ∆food) represents the opportunity cost of producing 1 extra unit of food in terms the units of clothing to be given up. 9. The bowed-out shape of the production possibilities frontier indicates that the opportunity cost of food in terms of clothing increases as the country produces more food. This occurs because some resources are better suited to the production of clothing than to the production of food (and vice versa).

10.

Clothing = f(food, resources, technology) (-) (+) (+)

Advances in technology shift the PPF to the right.

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