Economics deals with economic choices (decisions)
individuals, firms and nations make. Why do economic agents need to make
choices in the decision making process? What are the factors that force us to
make choices among the viable alternatives at our disposal during a given
period of time?
The economy works via the interactions of economic
agents (interactions of economic choices). Think of a recent purchasing
decision in which you compared the marginal benefits associated with buying a
product with the marginal costs. How do you make a rational decision by
comparing marginal benefits and marginal costs?
The economy works via the interactions of economic
agents or interactions of economic choices in markets. Economists claim that
pursuing self-interest leads to trade based on specialization, which in turn
leads to mutual gains from trade. What is the role of self-interest in free
market operations? Why engagement in self-interest may lead to better economic
welfare for the society at large?
to the Principles of Economics, economic principles guide how we make
economic choices and how we interact in the market. What role do economic
principles play in your personal economic decisions (choices)? Do you
encounter scarcity either personally or in your workplace? What are the
kinds of scarcity you encounter?
make rational economic decisions, we need to compare costs and benefits.
Suppose you are trying to decide whether to take a vacation. The majority
of the costs of the vacation are measured in monetary terms (dollars), but
the benefits of the vacation are generally non-monetary in nature. How do
you compare the non-monetary benefits with the monetary costs? What are
the economic (opportunity) costs of going on vacation? Explain in terms of
economic costs, which include both monetary and non-monetary costs.
The theory of comparative advantage states that there
are gains from trade if countries specialize and optimize their opportunity
costs. What is the difference between absolute advantage and comparative
advantage? Why do the gains from trade depend on comparative advantage regions
and countries have at a given period of time?
What is circular flow diagram? What are the major
markets and economic decision makers the circular flow diagram indicates? What
is the importance of the diagram in various markets of the economy or economic
Production possibility frontier indicates the maximum
amount of two goods that can be produced, given scarce resources and prevalent
technology. How does the production possibility frontier model help us
understand the feasible and efficient amounts that can be produced?
and comparative advantages differ in both meaning and importance. An
individual or a country may have absolute advantages in producing several
products and services whereas others may have comparative advantages. Give
an example in which one person has absolute advantages in doing two things
but another person has a comparative advantage in doing one of the tasks.
Will both individuals benefit if they specialize in a task based on their
comparative advantage and engage in trade? Why?
circular flow diagram shows us how economic agents interact in various
markets once the economic decisions (choices) are made. As an economic
agent, in which market do you participate in the circular flow diagram?
How does the flow diagram help you understand the roles of the economic
agents in the market?
Why supply and demand is considered as factors that
make market economies work? Why supply and demand drives the market economy?
Provide an example of the role of supply and demand in business decision
What is the difference between a movement along and a
shift of the demand and supply curves? What are the factors that lead to shifts
in supply and demand curves?
Governments may intervene in the market to control
prices. What are the inefficiencies the price controls measures such as price
ceilings and price floors create? Why do price ceilings and price floors lead
to productive and allocative inefficiency?
argue that successful business depends on creating sustainable and
effective supply and demand networks. If you own (manage) a business, how
do you create effective demand and effective supply to maximize profit?
are pros and cons of relying on various policy instruments. Assume there
is a proposal to raise tax revenue in order to make workers better off.
The proposal includes raising the payroll tax paid by firms to use part of
the extra revenue to reduce the payroll tax paid by workers. What are its
pros and cons? Explain.
What are the major components of the U.S. GDP? Explain
the contribution of each component to the GDP with data.
What is the relationship between the GDP and the
business cycle? How do the business managers use the information about the
positive trend in the real GDP growth rates to increase profits?
GDP only measures the value of marketed goods and
services for a country during a given period of time. What are the limitations
of the GDP in measuring total output and national welfare? What products (goods
and services) are excluded from the GDP computation?