Ten principles of Economics

1.Memorize ten principles and read the explanation of each principle from the book thoroughly. (Manqiw,
Chapter1!
Two simple models of economics
1.Circular flow diagram model. (Manqiw, chapter"!
".#mportance of $tudying of %conomics. &ifference between Micro and Macroeconomics
'.&raw a production possibilities frontier for guns and butter. (sing the concept of opportunity cost, explain why it
most likely has a bowedout shape.
).**+ and the concept of scarcity, trade off, opportunity cost, Choice and preference , efficiency,
economic growth, and employment.($amuelson, Chapter1, Manqiw, chapter"!
,.-n economy consists of three workers. /arry, Moe, and Curly. %ach works ten hours a day and can produce two
ser0ices. mowing lawns and washing cars. #n an hour, /arry can either mow one lawn or wash one car1 Moe can
either mow one lawn or wash two cars1 and Curly can either mow two lawns or wash one car.
a. Calculate how much of each ser0ice is produced under the following circumstances, which we label -, 2, C, and
&.
3 -ll three spend all their time mowing lawns. (-!
3 -ll three spend all their time washing cars. (2!
3 -ll three spend half their time on each acti0ity. (C!
3 /arry spends half his time on each acti0ity, while Moe only washes cars and Curly only mows lawns. (&!
b. 4raph the production possibilities frontier for this economy. (sing your answers to
part (a!, identify points -, 2, C, and & on your graph.
c. %xplain why the production possibilities frontier has the shape it does.
d. -re any of the allocations calculated in part (a! inefficient5 %xplain.
6.. Classify the following topics as relating to microeconomics or macroeconomics.
a. a family7s decision about how much income to sa0e
b. the effect of go0ernment regulations on auto emissions
c. the impact of higher national sa0ing on economic growth
d. a firm7s decision about how many workers to hire
e. the relationship between the inflation rate and changes in the quantity of money
8. Classify each of the following statements as positi0e or normati0e. %xplain.
a. $ociety faces a shortrun tradeoff between inflation and unemployment.
b. - reduction in the rate of money growth will reduce the rate of inflation.
c. 9he Central 2ank should reduce the rate of money growth.
d. $ociety ought to require welfare recipients to look for :obs.
e. /ower tax rates encourage more work and more sa0ing.
;. $ee the *ower*oint slides pro0ided in the class room.
# will answer your query in the next class.
&ear $tudents, you better start practicing right now<