Final Review Part 1 KEY

Final Review Part 1: (Ch. 1-3)
Chapter 1:
Positive Statement:
Don’t have to be correct but can be
Proved or disproved; fact based
Normative Statement:
Can not be tested or proven;
opinion based
The government should provide basic healthcare to all citizens. N
The government-provided healthcare increases public expenditures. P
Japan has the most passionate tennis team. N
The ocean is purple. P
Chapter 2:
Opportunity Cost vs. Direct Costs
Opportunity Cost:
Measures the benefits that will be lost if
One option is chosen over another
Direct Cost:
what is actually spent in monetary
1. Assume that a storeowner has a vacant rack in front of the counter that he wants
to fill with merchandise. He found out that if he filled the rack with apples, his
estimated sales for one week would be $100, but if he filled the rack with candies he
would expect to sell $190 worth of candy. He chooses to fill the rack with apples.
What is his opportunity cost?
Opportunity cost = $190
2. David has $20. He doesn’t know whether to buy 2 movies for $10 each or 1 video
game for $20. If he chooses to buy the video game what is his direct cost and what is
his opportunity cost?
Direct: $20 Opportunity: 2 movies
Possibility Frontier Diagram is attainable and efficient or not?
Discuss attainability and
efficiency of each:
Point C
Point X
Point Y
Point B
Yes A and E
Yes A, No E
No A or E
Yes A and E
Absolute Advantage vs. Comparative Advantage
Absolute Advantage:
Comparative Advantage:
When one country is able to use its
When, during a trade, it would be
Resources to produce more of a product more efficient to produce this good
Than another country
while the other country produces
The other good
Chapter 3:
Variables that shift demand and supply:
1. Changes in Prices of Related
Goods and Services
2. Changes in Income
3. Changes in Taste
4. Changes in Expectation
5. Changes in Number of
1. Changes in Input Price
2. Changes in Prices of Related
Goods and Services
3. Changes in Technology
4. Changes in Expectation
5. Changes in Number of
Reference “All About Demand” and “All About Supply” to see how they shift and to look
at examples.
Surplus vs. Shortage
There is excess surplus;
Supply > Demand
There is excess demand;
Demand > Supply
If there is no shift in supply or demand, the Price at
______ will create a ________.
Price at Y, will create surplus
Price at P, will create equilibrium
Price at X, will create shortage
Substitute vs. Complementary Goods
two goods that can be used for
a good that is usually bought along
the same purpose. If price of one
with another good. If the price of
increases, than demand for sub rises
one increases, the demand for the
other decreases.