1 ECON 2105 EXAM 1 REVIEW 9.30 AM CHAPTER 1 1. Define marginal thinking and give an example 2. Explain why scarcity leads to constant trade-offs 3. List the 5 fundamentals of Economics and explain each one in details 4. Draw the circular flow diagram and explain a. The types of agents b. The types of markets c. The flow of goods and services and resources2 d. The flow of money CHAPTER 2 1. Explain the difference between positive and normative statements and cite examples of both 2. Production Possibilities Frontier a. Definition b. Understand the assumptions made in the PPF model c. Where are inefficient/efficient/unattainable points located3 d. Use the PPF above to: - Calculate the opportunity cost of increasing wings by 60 - Calculate the opportunity cost of increasing pizzas by 10 - Calculate the opportunity cost of increasing pizzas by 20 - Calculate the opportunity cost of increasing wings by 20 - Calculate the opportunity cost of one more pizza. Interpret your result. - Calculate the opportunity cost of one more wing. Interpret your result. e. Explain the law of increasing opportunity cost and why the PPF’s slope would likely not be constant f. PPF and economic growth: - If a shift affects one good, why can the production of both goods rise? - Causes of shifts that affects both goods4 3. Specialization and trade a. Define absolute advantage b. Define comparative advantage Without trade consumption After trade consumption Gains from trade Debra Pizzas Wings 40 40 41 47 Mike Pizzas Wings 18 18 19 25 c. Use the table above to calculate the gains from trade and interpret your results. d. Using the table above, calculate - Who has the absolute advantage in pizzas and wings? - Who has the comparative advantage in pizzas and wings? Show your
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