Unit 1 - Supply, Demand, and PPC

Question 1

Scarcity

Answer 1

Limited resources

Question 2

Opportunity cost

Answer 2

True cost of something, what you are giving up to get it

Question 3

What are the factors of production?

Answer 3

1. Land - all natural resources
2. Labor - effort of workers
3. Capital - tools, equipment, buildings
4. Entrepreneurship - organizing things that cause production

Question 4

Efficiency

Answer 4

Achieves growth and wants

Question 5

Production Possibilities Curve (PPC or PPF)

Answer 5

Shows true cost of production (graphical representation of opportunity cost)
1. On curve - efficient
2. Below curve - possible but inefficient
3. Above curve - impossible/unattainable

Question 6

How do you find opportunity cost in a table?

Answer 6

Find what you are losing from unit to unit
ex: opp. cost of producing the 4th unit is what you are losing going from point 3 to 4

Question 7

Increasing opp. cost

Answer 7

Bowed outward graph

Question 8

Constant opp. cost

Answer 8

Straight line graph

Question 9

Specialization & Trade

Answer 9

leads to exchange which leads to increased standard of living

Question 10

Gains from trade

Answer 10

You get more
As long as both parties have diff. opp. cost, everyone benefits

Question 11

Output problems

Answer 11

Other goes over

Question 12

Comparative advantage

Answer 12

Whoever has the least opp. cost
(based on opp. cost)

Question 13

Absolute advantage

Answer 13

Makes more overall with amount of given resources

Question 14

Terms of trade

Answer 14

Both parties will benefit if the terms of trade are in between the opp. cost

Question 15

Competitive market

Answer 15

Many buyers and sellers
Ex: Iowa and corn, Kansas and wheat

Question 16

Law of Demand

Answer 16

Price goes up - Quantity demanded goes down
Price goes down - Quantity demanded goes up
(inverse relationship)

Question 17

Shifters of the Demand Curve

Answer 17

TRIBE + G
1. Tastes
2. Price of related goods
3. Income
4. Number of buyers
5. Expectations
6. Government policy

Question 18

Substitutes - demand

Answer 18

If the price of good 1 increases, the demand of good 2 increases

Question 19

Compliments - demand

Answer 19

If the price of good 1 increases, the demand of good 2 decreases

Question 20

Substitutes - supply

Answer 20

If the price of good 1 increases, the supply of good 2 decreases

Question 21

Compliments - supply

Answer 21

If the price of good 1 increases, the supply of good 2 increases

Question 22

Normal good

Answer 22

If income increases, the quantity demanded increases

Question 23

Inferior good

Answer 23

If income increases, the quantity demanded decreases

Question 24

Law of Supply

Answer 24

Price goes up - Quantity supplied goes up
Price goes down - Quantity supplied goes down

Question 25

Shifters of the Supply Curve

Answer 25

I-RENT-G
1. Inputs
2. Price of related goods
3. Expectations
4. Number of producers
5. Technology
6. Government policy

Question 26

Price Ceiling

Answer 26

Sets the max price (limit)
Horizontal line under equilibrium

Question 27

Price Floor

Answer 27

Sets minimum price
Horizontal line over equilibrium

Question 28

Quota rent

Answer 28

Tax - what consumers pay minus what producers pay