Lessons 1

Question 1

What’re the factors of production? (4)

Answer 1

factors of production:

1. labor
2. natural resources
3. physical capital
4. entrepreneurship

Question 2

What’s physical capital?

Answer 2

physical capital is MANMADE EQUIPMENT

Question 3

examples of physical capital?

Answer 3

1. machinery
2. buildings
3. roads
4. vehicles

Question 4

What’s the opportunity cost?

Answer 4

the next best use of that resource

- next best option you’re giving up

Question 5

What’s marginal cost?

Answer 5

marginal cost is the additional cost incurred from consuming one more unit

Question 6

What’s marginal benefit?

Answer 6

marginal benefit is the additional benefit you get from consuming one more unit

Question 7

What happens the more you produce a good?

Answer 7

the more you produce a good, the greater the OPPORTUNITY COSTS

Question 8

What does the production possibility curve look like?

Answer 8

it’s BOWED OUTWARDS

- like an upside down bowl

Question 9

When are you productively efficient?

Answer 9

you’re productively efficient when you’re on the PRODUCTION FRONTIER

Question 10

When are you allocatively efficient?

Answer 10

you’re allocatively efficient when you’re producing the optimal mix of goods and services that benefit society the most

Question 11

What causes the economy to grow (in the long-term)?

Answer 11

economy grows when:

1. the QUANTITY of resources increase
2. the QUALITY of resources increase
3. TECHNOLOGY increases

Question 12

What’re the characteristics of capitalism?

Answer 12

capitalism

1. private property owned by people
2. freedom
3. self-interest and incentives
4. competition
5. prices

Question 13

What happens to demand when price increases?

Answer 13

demand DECREASES

Question 14

What’s the relationship between price and the quantity demanded of a good?

Answer 14

there’s an INVERSE or NEGATIVE relationship

Question 15

What’s the substitution effect?

Answer 15

when you change the quantity you demand when the price of one good changes

Question 16

what’s the income effect?

Answer 16

when you change the quantity you demand when you’re income changes

Question 17

What’re the determinants of demand? (6)

Answer 17

determinants of demand

1. income
2. prices of substitutes
3. prices of complementary goods
4. consumer tastes and preferences
5. consumer expectations about future prices
6. number of consumers

Question 18

What’re normal goods?

Answer 18

When your income increases, you want more of that good

Question 19

What’re inferior goods?

Answer 19

when your income increases, you want less of that good

Question 20

What happens to the quantity supplies when the price of a good increases?

Answer 20

quantity supplied increases too

Question 21

What happens to suppliers as the quantity supplied of a good increases?

Answer 21

They face rising marginal costs.

Question 22

What leads to a movement along the supply curve?

Answer 22

a change in price leads to a change in quantity supplies/ a movement along the supply curve

Question 23

What’re the determinants of supply? (6)

Answer 23

1. cost of inputs
2. technology and productivity
3. taxes or subsidies
4. producer expectations about future prices
5. price of other goods you can produce
6. number of suppliers

Question 24

What do the determinants of demand and supply do?

Answer 24

they shift the demand or supply curve.

Question 25

What happens to the supply curve when more suppliers enter the market?

Answer 25

supply curve shifts right

Question 26

What happens to the supply curve when more suppliers leave the market?

Answer 26

supply curve shifts left

Question 27

When’s the market in equilibrium?

Answer 27

demand equals supply

Question 28

How do you calculate total welfare?

Answer 28

total welfare = consumer surplus plus producer surplus

Question 29

What’s consumer surplus?

Answer 29

the difference between what you were willing to pay and the actual lower price

Question 30

What’s producer surplus?

Answer 30

producer surplus is the difference between the actual higher price and the lower price the producer was wiling to receive.