CHAPTER 1 READING OUTLINE

NAME: LUIS ANTHONY VILLANES ALCANTARA

Answer the following questions in your own words and submit the completed file on I-Learn.

1. Since we have unlimited needs and wants but only limited resources, we face trade-offs
with each decision. Explain how a rational individual would compare the marginal benefit to
the marginal cost when making decisions.

All people must make a comparison between the marginal benefit and the marginal cost to
make a decision, when the marginal benefit exceeds the marginal cost, then a favorable
decision is made. For example, if I wanted to buy a computer and I have many possibilities
because there are computers of different prices, then I choose to buy a computer but I
could buy a more expensive computer; at this point I start to compare the MB and the MC; I
realize that a more expensive computer would give me better benefits because it has
functionality for my work and the screen has a better resolution to watch movies, I like that,
I can say that MB is greater than MC, so finally I decided to buy the most expensive
computer; and I have the money to buy it.

2. Explain why the other-things-equal assumption or ceteris paribus is important when

analyzing relationships.

The economic reality is complex, when economists seek to establish economic theories
should simplify the many economic variables that exist in society, so they can analyze fewer
variables which can generate economic principles through the scientific method. Ceteris
paribus establishes that the amounts of resources and the quality of resources are fixed, in
addition to labor force, capital, entrepreneurial ability are being used to the maximum, when
all this is considered fixed, economists can focus their attention on simply 2 or 3 variables
and economic graphs can be made to represent them.

3. Differentiate between micro- and macroeconomics.

Microeconomics analyzes economic units, such as households, specific companies,

customers, buyers, distributors, etc. But the microeconomics does not analyze these units
 as a whole, it only analyzes the particles of sand, the stones, the mollusks but does not
analyze the beach in full.
The macro economy analyzes all household units, all companies, all customers, all buyers,
all distributors as units. For example: the total unemployment in a country, the mining
sector in a country, the agricultural sector in a country, the energy sector in a country; All
these are considered as units.

4. Differentiate between positive and normative economics.

The positive economy tells us things as they are, the normative economics tells us things as
they should be. This means that the positive economy is descriptive, because it tells us what
economic reality is like in a given time; on the basis of this the normative economy issues
value judgments that seek to establish what actions should be to modify that reality or if it
should be kept constant. Most economists agree on positive economic issues because they
are principles and theories but most economists do not agree on issues of normative
economics because each one has a different value judgment and a different morality as
well.

5. Explain a budget line and how to construct it.

The budget line shows us the different combinations of 2 products that we can consume,
that is, the quantities of each of these products that we can consume. Because resources
are scarce we can not have many quantities of both products. If we want an additional unit
of a product, we have to give up having units of the other product; This is the opportunity
cost. To build a budget line it is necessary to make a table showing the possibilities of
combinations of acquisition of goods or services, obviously this table shows that if we obtain
more units of a good then we will obtain less units of the other good; these points can be
represented in a double-axis graphic (horizontal and vertical), in one axis a good is
represented and in the other axis the other good is represented.

6. Identify types of economic resources.

The economic resources are:

Land: Represents all natural resources that are used to produce goods and services.

Labor force: It is the human resource, it is the capacity that we as people have to produce
goods and services, here are all our skills and abilities.

Capital: This is not money, this is the set of machinery and all other necessary tools to
produce goods and services, capital meets needs indirectly.
 Business skills: It is the ability of entrepreneurs to organize and promote a company,
assuming risk and struggling to generate profits.

7. Explain what the production possibilities curve (PPC) demonstrates and the assumptions to
be on the curve.

The production curve shows the possible combinations of quantities that we can produce
from two goods, because resources are scarce, it is not possible to produce both goods in
abundance, so if we want to produce more units of a good, we will produce less quantities.
of the other good, which represents an opportunity cost. the opportunity cost grows as we
seek to produce more quantities of a good, because certain resources are more useful to
produce certain goods than to produce other goods. In this curve it is assumed that
resources are being used at 100% capacity.

7.1. Explain what will shift the PPC out and in

The PPC can change outwards when the technology that produces the goods
improves, also when there is greater capacity in the labor force, that is, when there
is more training or when there are resources in abundance.
The PPC can change inward when the conditions of the economic resources
mentioned above are not favorable.

7.2. Explain what will move you away from or toward the PPC.

I can be inside the PPC because the financial resources allow me, this situation is
not ideal and it is not the most favorable, but this depends on my decision; but I
can not be outside the PPC this is not possible because you do not have the
economic resources necessary to produce quantities outside the PPC.

7.3. Explain how a society’s decision to produce capital (i.e., machinery) or consumer
goods will impact future growth.

For society to obtain more consumer goods in the future it is necessary that it
produces more capital in the present, this is important because if society decides to
postpone the production of capital, and decide to produce more consumer goods,
in the future it will not have the ability to produce more consumer goods because
the machinery will be obsolete and will not have developed.
Math Review & Appendix

8. Explain a direct and inverse relationship between two variables and give an example of
each.
The direct relationship shows that if we increase the quantity of one variable then the other
variable will also increase in quantity. For example: If the number of working hours
increases, then the units of goods produced also increase.

The inverse relationship shows that if we increase the quantity of one variable then the
other variable will decrease in quantity. For example: If the price of rice increases then
there will be fewer people who buy rice

9. Given the linear equation: Consumption = 100 + 0.25 (Income)

a) Identify the dependent and independent variable?

Dependent: Income
Independent: Consumption

b) How much is consumption when income is zero?

100+ 0.25*0 = 100

c) If one’s income was $2,000, what is their estimated consumption?

100+0.25*2000 = 600

10. Discuss the advantages and disadvantages of the major that you have chosen and the
tradeoffs associated with selecting that major.

I'm studying business administration; The advantages are that I can use my financial,
organizational, and leadership skills. These activities I like very much. The disadvantage is
that this can be very stressful at times, I do not have much ability to handle stress easily,
it's something I need to develop.

11. Give one example of how the principles in this chapter currently impact your life or relate to
your chosen career.

I want to be a business administrator, and to run a company it is necessary to make

decisions based on economic principles, although money is not an economic resource, it is a
very valuable means, for this reason it is necessary to take care of the money of a company
and for To achieve this it is necessary to know the economic principles and theory that can
guarantee wise decisions. I am going to have a family soon and I want to use the money of
the family in a wise way, that is, I do not want my family not to have what it takes to have
a stable economic life.