Sec I #2.

Distinguish between microeconomics and

macroeconomics.
First of all, in simpler words, Economics is the study of how
we choose to use limited resources to obtain the maximum
satisfaction of unlimited human wants. There are two types
of economic study: microeconomics and macroeconomics.
Microeconomics is the study of individual markets for goods,
services and resources. Some examples of areas examined
under microeconomics are 1) supply and demand for a good
or service in a particular market, and 2) the relationship
between prices and quantities of individual products. In a
very simplistic perspective, it would include my study of a
keyboard, a mouse, a monitor and a hard disk, but not my
study of the computer as a whole.
Macroeconomics is the study of whole nations and global
economy. It is taking an overview perspective. Some
examples of areas examined under macroeconomics are 1)
aggregate or total sum of items examined in
microeconomics, and 2) interactions of all of nations
households, firms, governments and foreigners. Study of
macroeconomics helps in making and influencing
government policies that affect economies as a whole. In a
very simplistic perspective, it would include my study of the
computer and its overall performance, but not its individual
parts such as a keyboard or a monitor.
It is important to note however that although identified and
studied separately, both these subjects are quite
interdependent. For example, here is an expansion on the
example used in previous paragraphs, for the purpose of
continuity. If my school (government) mandates (policy
change) its students (myself/people) to switch to a laptop
(macroeconomic effect), I would have to stop using my
desktop and therefore my current keyboard (which would
further affect the need for me to study desktop keyboards).

Sec ll #1. Using the circular flow diagram, explain how

a society copes with scarcity.

The concept of scarcity is fundamental to economics.

Something is considered scarce if it is both desired and
limited. Basically what scarcity means in economics is that it
is impossible to satisfy the unlimited human wants with
limited resources and finite technology in the world.
Therefore, we (human beings) are forced to make choices
(trade off) in terms of what we can and cannot have. Also,
we have to give up a portion of our resources in the form of
goods, services, and/or leisure in order to have them
(opportunity cost). The scarce resources are called factors of
production or inputs or resource mix: land, labor,
entrepreneurship, capital. The income earned by each of
these resources is in form of rent, wages, profits (and
interest), debt (and equity) respectively.

A particular economic system of a free enterprise capitalist

society with a strong presence of a government is typically
organized into two markets: A product market, where
products (goods and services) are sold by firms and are
bought by households, and a factor market, where factors of
production are supplied by households and are bought by
firms. This is one of the ways such a society copes with the
problem of scarcity. Both firms and households play a dual
role: firms employ/buy resource mix from households and

through the process of production generate goods and

services, most of which are sold to people/households.
Households buy these goods and services to sustain/live and
provide/sell resources to firms such as labor,
entrepreneurship. Notably, the flow of income runs exactly
opposite to the flow of resources, as the resources at each
point are traded off in terms of income.

Some of the goods and services produced by the firm leave

this circular flow in form of taxes, imports and savings.
However, this economic system is also injected with
resources by government purchase, exports and
investments. Withdrawals and injections dont necessarily
equate in amounts. Therefore, an economic system usually
expands or contracts based on the overall effect of the
circular flows of resources/income, injections and
withdrawals.

Anupa Shah ECONX2-016 Assignment 1

Appendix

2. Scatter diagram of the growth rate (x axis) and the

unemployment rate (y axis) for US economy from years 2001
to 2011 shows a weak relationship between the two. In other
words, it is difficult to predict with confidence behavior/trend

of either rate based solely on the known behavior/trend of

the other rate for US economy during the given time period.

4. Scatter diagram of the number of theaters (x axis) and

revenue per theater (y axis) for listed four movies in the
weekend of May 11-12, 2012 shows a relationship that starts
out sloping downward, falls to a minimum point, and then
slopes upward with a steep curve. So based on the four data
points- the revenue generated per theater decreases as the
number of theaters showing the movie increases until a
certain point, where the revenue is lowest. After that point,
however, the more theaters show the movie, the (very)
higher the revenue generated.

6. Slope of the relationship between 2052 and 2531

theaters:

= change in y / change in x
= (2834-1780) / (2052-2531)
= -1054/479
= -2.2

(-ve slope reinforces that the relationship is inverse between

these two points. As number of theaters increase, revenue
decreases)