Economics 202 Study Questions Unit # 1

Chapters 1, 2 and special topic 2

1) What is the basic economic problem, why does it exist, and what do families do to deal with the problem?

2) Describe the eight guideposts to economic thinking from chapter one and explain and offer an example of each.

3) Define the concept of opportunity costs and the manner in which economic efficiency involves minimizing opportunity costs.

4) Define economics and distinguish between macroeconomics and microeconomics and positive and normative economics.

5) What are the basic economic questions that all societies must face? Explain each question in detail.

6) How can the production possibility curve be used to better understand the opportunity costs that societies face as they make economic choices to produce different combination of goods and services?

7) What is the law of increasing costs? Why do societies face increasing costs?

8) How would the existence of unemployment (inefficient use of resources) affect the production possibilities of a society?

9) How does economic growth affect the production possibilities of a society?

10)Why do people (societies) engage in trade?

11)What are transactions costs and how do they provide an economic justification for “middleman”?

12)What is the law of comparative advantage? Develop an example of the above and show how comparative advantage leads to economic specialization and trade.

13)Compare the characteristics of a market economic system to a collective (command) economic system.

14)Describe the importance of private property ownership, property rights, the profit motive, competition between business firms, and the role of markets to the operation of a market economic system.

15)How is the internet changing the economy? How might the internet affect transaction costs as well as the competitive nature of markets?