LESSON 7: ECONOMIC MODELS, FINDING EQUILIBRIUM P&Q SLOPE & ELASTICITY

Question 1

(?) are simplified representations of real-world economic situations that help economists analyze, predict, and explain economic behavior.

Answer 1

ECONOMIC MODELS

Question 2

Purpose of Economic Models (3)

Answer 2

ANALYZE, PREDICT, AND EXPLAIN ECONOMIC BEHAVIOR

Question 3

Two (2) common Economic Models

Answer 3

(1) CIRCULAR FLOW MODEL; & (2) PRODUCTION POSIBILITIES FRONTIER

Question 4

(?) illustrates how money, goods, and services move through the economy & shows the interactions between households and firms in two main markets: the product market and the factor market

Answer 4

CIRCULAR FLOW MODEL

Question 5

(?) represents the maximum possible output combinations of two goods or services that an economy can produce, given its resources and technology.

Answer 5

PRODUCTION POSIBILITIES FRONTIER (PPF)

Question 6

Where goods and services are exchanged

Answer 6

PRODUCT MARKET

Question 7

Where labor, capital, and resources are provided by households

Answer 7

FACTOR MARKET

Question 8

Concepts of Production Posibilities Frontier (3)

Answer 8

1. OPPORTUNITY COSTS
2. EFFICIENCY
3. ECONOMIC GROWTH

Question 9

This model is useful for analyzing trade-offs, resource allocation, and the effects of economic decisions.

Answer 9

PRODUCTION POSIBILITIES FRONTIER (PPF)

Question 10

The cost of choosing one good over another

Answer 10

OPPORTUNITY COST

Question 11

Producing on the curve

Answer 11

EFFICIENCY

Question 12

Shifting the curve outward

Answer 12

ECONOMIC GROWTH

Question 13

Decisions are made by households and firms.

Answer 13

CIRCULAR FLOW MODEL

Question 14

(1) and (2) interact in the markets for goods and services

Answer 14

(1) HOUSEHOLDS; (2) FIRMS

Question 15

In CFM, the outer set of arrows shows the flow of (1), and the inner set of arrows shows the corresponding (2)

Answer 15

(1) DOLLARS; (2) FLOW OF GOODS AND SERVICES

Question 16

Households are buyers and firms are sellers. In particular, households buy the output of goods and services that firms produce.

Answer 16

IN THE MARKETS FOR GOODS AND SERVICES

Question 17

Households are sellers and firms are buyers. In these markets, households provide firms with the inputs that the firms use to produce goods and services.

Answer 17

IN THE MARKETS FOR THE FACTORS OF PRODUCTION

Question 18

The (?) offers a simple way of organising all the transactions that occur between households and firms in the economy.

Answer 18

CIRCULAR FLOW DIAGRAM

Question 19

Where does the PESO start in the economy?

Answer 19

STARTS IN THE POCKET; IN A HOUSEHOLD

Question 20

What happens when you use the PESO to buy something?

Answer 20

GOES TO A STORE WHEN YOU BUY GOODS

Question 21

What does the store do with the PESO?

Answer 21

PAY FOR RENT OR SALARIES

Question 22

Where does the PESO go after the store pays rent or wages?

Answer 22

LANDLORD or WORKER; BACK TO THE HOUSEHOLD

Question 23

What happens after the PESO goes back to a household?

Answer 23

THE CYCLE STARTS AGAIN; IT IS SPENT

Question 24

What is this cycle called?

Answer 24

CIRCULAR FLOW MODEL

Question 25

What does a more realistic circular-flow model include?

Answer 25

GOVERNMENT, TAXES, AND INTERNATIONAL TRADE

Question 26

(?) a graphical representation that shows the maximum possible output combinations of two goods or services an economy can produce, given its available resources & technology.

Answer 26

PRODUCTION POSIBILITIES FRONTIER

Question 27

Key concepts in Production Posibilities Frontier (4)

Answer 27

1. SCARCITY 2. OPPORTUNITY COSTS 3. EFFICIENCY 4. ECONOMIC GROWTH

Question 28

Points along the PPF curve represent (?), meaning resources are fully utilized, and no more output can be produced without sacrificing the production of another good.

Answer 28

PRODUCTIVE EFFICIENCY

Question 29

Points inside the curve indicate (?), possibly due to unemployment or inefficient use of resources.

Answer 29

UNDERUTILIZATION or INEFFICIENCY

Question 30

Points outside the curve are (?) with current resources and technology

Answer 30

UNATTAINABLE

Question 31

If an economy acquires more resources, improves technology, or increases labor productivity, the PPF shifts outward, representing (?)

Answer 31

ECONOMIC GROWTH

Question 32

Producing more of one good means sacrificing the production of another.

Answer 32

OPPORTUNITY COST

Question 33

A (?) is a maximum limit set by the government on how much a product or service can be sold for

Answer 33

PRICE CEILING

Question 34

Represents the rate at which the quantity demanded changes in response to a change in price

Answer 34

SLOPE OF THE DEMAND CURVE

Question 35

A (?) means there is an inverse relationship between price and quantity demanded, meaning as price decreases, the quantity demanded increases

Answer 35

NEGATIVE SLOPE

Question 36

It is often used to ensure fair earnings for producers, particularly in industries like agriculture or labor.

Answer 36

PRICE FLOOR

Question 37

It is usually implemented to keep essential goods (like food, fuel, or rent) affordable for consumers.

Answer 37

PRICE CEILING

Question 38

A small change in price results in a smaller change in quantity demanded, indicating inelastic demand

Answer 38

STEEPER SLOPE

Question 38

Rent control laws that cap how much landlords can charge for housing.

Answer 38

PRICE CEILING

Question 39

A (?) is a minimum limit set by the government on the price of a good or service

Answer 39

PRICE FLOOR

Question 40

Can lead to shortages because demand may exceed supply at the capped price.

Answer 40

PRICE CEILING

Question 41

Minimum wage laws that ensure workers earn a livable income.

Answer 41

PRICE FLOOR

Question 42

Can lead to surpluses if supply exceeds demand at the enforced price.

Answer 42

PRICE FLOOR

Question 43

A small change in price results in larger change in quantity demanded, indicating elastic demand

Answer 43

FLATTER SLOPE

Question 44

Represents the relationship between the price of a good and the quantity supplied by producers.

Answer 44

SLOPE OF THE SUPPLY CURVE

Question 45

Has a positive slope

Answer 45

SLOPE OF THE SUPPLY CURVE

Question 46

Occurs when there is a change in the quantity demanded of a good due to a change in its price, assuming all other factors remain constant.

Answer 46

MOVEMENT ALONG THE DEMAND CURVE

Question 47

Happens when factors other than the product's price change, leading to an increase or decrease in demand at all price levels.

Answer 47

SHIFT OF THE DEMAND CURVE

Question 48

A shift to the (?) indicates an increase in demand, often caused by factors like higher consumer income, positive changes in preferences

Answer 48

RIGHT

Question 49

A shift to the (?) signifies a decrease in demand, which can result from lower consumer income, negative changes in preferences, a decrease in the price of substitutes

Answer 49

LEFT

Question 50

Greek letter (Δ) in a slope formula is called?

Answer 50

DELTA

Question 51

The slope of a line is equal to the (1) divided by (2)

Answer 51

(1) RISE, CHANGE IN Y; (2) RUN, CHANGE IN X

Question 52

Elastic Demand

Answer 52

ELASTICITY > 1

Question 53

Inelastic Demand

Answer 53

ELASTICITY < 1

Question 54

Unit Elastic Demand

Answer 54

ELASTICITY = 1

Question 55

Conversely, a flat slope (small change in price for a large change in quantity) generally suggests (?)

Answer 55

ELASTIC DEMAND

Question 56

What does the price elasticity of demand measure?

Answer 56

SENSITIVE QUANTITY DEMANDED IS TO A CHANGE IN PRICE