Basic Economics Concepts Reading Guide – Chapters 1, 2, and 3 Chapter 1: The Nature and Method of Economics Questions 1. Explain the economic way of thinking. 2. How does scarcity impact opportunity cost? 3. What are marginal costs and marginal benefits? 4. What is the difference between macroeconomics and microeconomics? Chapter 2: The Economizing Problem Questions 1. Explain the economizing problem. 2. Explain how marginal benefits and marginal costs analysis leads to allocative efficiency. 3. Explain how international specialization and international trade leads to a more productive economy. 4. What happens in the resource market and product market of the circular flow model? Chapter 3: Individual Markets – Demand and Supply Questions 1. Draw and explain the elements of a normal demand curve. 2. Explain the each of the determinants of demand affect the demand curve. 3. What is the difference between a change in demand and a change in quantity demanded? 4. Draw and explain the elements of a normal supply curve. 5. Explain how each of the determinants of supply affect the supply curve. 6. What is the difference between change in supply and change in quantity supplied? 7. Explain how a market that is not operating at equilibrium creates surpluses and shortages. 8. Explain the importance of the “other things equal” assumption in economics.