Basic Economic Concepts

Question 1

Scarcity

Answer 1

The inability of limited resources to satisfy unlimited wants.

Question 2

Resources

Answer 2

Land, Labor, Capital, Entrepreneurship

Question 3

Land Resources

Answer 3

Resources from nature

Question 4

Labor Resources

Answer 4

Mental or physical work from people

Question 5

Capital Resources

Answer 5

Goods used to produce other goods & services

Question 6

Entrepreneurship

Answer 6

Business owners who produce a product

Question 7

Trade-Offs

Answer 7

Allocating scarce resources involved trade-offs

Question 8

Shortage

Answer 8

The quantity supplied is less than the quantity demanded at the current price

Question 9

Production Possibilities Curve (PPC)

Answer 9

A graph that shows all combinations of two goods or categories of goods that can be produced with fixed resources.

Question 10

Concaved PPC

Answer 10

The two goods or categories of goods produced have an increasing opportunity cost. The resources are not perfectly adaptable.

Question 11

Linear PPC

Answer 11

The production of one good or category of goods is going to have a constant opportunity cost in terms of the other good. The resources are perfectly adaptable.

Question 12

Opportunity Cost

Answer 12

The cost of a choice

Question 13

Productive Efficiency

Answer 13

Any point on the PPC curve means the resources are being used efficiently

Question 14

Inefficiency

Answer 14

Any point within the PPC curve means resources are being used inefficiently

Question 15

Impossible/Unobtainable

Answer 15

Any point outside the PPC curve is impossible as we have scarce resources and can’t produce everything we want

Question 16

Shift In

Answer 16

Decrease in the quantity or quality of resources will cause the PPC curve to shift inwards resulting in the economy not being able to produce as much of either good A or good B

Question 17

Shift Out

Answer 17

Increase in the quantity or quality of resources will cause the PPC curve to shift outward resulting in the economy being able to produce more of either good A or good B

Question 18

Change in Technology

Answer 18

If we have a change in technology that only affects one of the goods then the good in question will kick out a bit (increase)

Question 19

Change in Capital & Consumer Goods

Answer 19

If an economy moves from producing a lot of capital goods but not as many consumer goods (point A) to producing a lot of consumer goods but not as many capital goods (point B) then economic growth will slow.

Question 20

Absolute Advantage

Answer 20

The ability to produce more of something with fixed resources or the same amount of something using fewer resources

Question 21

Comparative Advantage

Answer 21

The ability to produce at a lower opportunity cost

Question 22

Output Problem: Other-Over

Answer 22

Include goods or categories of goods that a country or economy is producing or outputting.

Question 23

Input Problems: It-Over

Answer 23

Include units of resources that go into the production of a product.

Question 24

Specialize

Answer 24

An economy produces solely what they have a comparative advantage in

Question 25

Mutually Beneficial Terms of Trade

Answer 25

Mutually beneficial terms of trade will fall between the opportunity costs

Question 26

Law of Demand

Answer 26

Ceteris Paribus, consumers buy more at low prices and less at high prices

Question 27

3 Reasons Why Curve is Downward

Answer 27

Substitution Effect, Income Effect, Diminishing Marginal Utility

Question 28

Diminishing Marginal Utility

Answer 28

Satisfaction gained with each additional unit decreases as each unit is consumed

Question 29

Income Effect

Answer 29

An increase in price decreases purchasing power and vice versa

Question 30

Substitution Effect

Answer 30

An increase in price makes substitutes more attractive and a decrease in price makes them less attractive

Question 31

Individual to Market Demand

Answer 31

Market Demand curves come from Individual Consumer Demand curves.

Question 32

Individual Consumer Demand Curve

Answer 32

How much of an item an individual is willing to buy at a specific price.

Question 33

Demand

Answer 33

Every single price and every single quantity demanded for those prices

Question 34

Shift

Answer 34

An increase in demand shifts the entire curve to the right. A decrease in demand shifts the entire curve to the left

Question 35

Determinants of Demand (Non-price Determinants)

Answer 35

Things that shift the demand curve to the right or left. Tastes & Preferences, Market Size, Prices of Related Goods, Changes in Income, Expectations

Question 36

Law of Supply

Answer 36

Ceteris Paribus, producers sell more at high prices and less at low prices.

Question 37

Individual to Market Supply

Answer 37

Market Supply curves come from Individual Supply curves. An Individual Supply curve is how much of an item a supplier is willing to supply at a specific price.

Question 38

Supply

Answer 38

The entire supply curve. Every single price and every single quantity supplied for those prices

Question 39

Determinants of Supply

Answer 39

Things that shift the supply curve to the right or left. Input Price, Taxes, Subsidies, Regulations, Number of sellers, Technology, Prices of Other Goods

Question 40

Quantity Supplied

Answer 40

One quantity for one price

Question 41

Market Equilibrium

Answer 41

The price that clears the market. Quantity Demand = Quantity Supply

Question 42

Surplus

Answer 42

When there is a low Quantity Demanded and high Quantity Supplied. Quantity Demand <-Quantity Supply

Question 43

Shortage

Answer 43

When there is high Quantity Demanded and low Quantity Supplied. Quantity Demand -> Quantity Supply

Question 44

Changes in Equilibrium

Answer 44

Changes in Supply, Changes in Demand, New equilibrium will occur, When the demand or supply curve shifts there isn’t an immediate price change.