Unit 1 Flashcards
What is the PPC and what does it do?
A model that shows the alternative ways we can use our scare resources to produce only 2 goods.
What are the 4 factors of production?
Land, labor, capital, entrepreneurship
What is opportunity cost?
Cost of the next best alternative; what you would have done if you didn’t make that choice
T or F: Any point inside the PPC is inefficient. If true, why?
True; because we’re not using our resources to the fullest
T or F: Any point on the PPC is efficient
True
T or F: Any point outside the PPC is attainable and plausible
False; any point outside the PPC curve is unattainable
T or F: Using more workers shifts the PPC curve
False; using workers that previously weren’t working doesn’t shift the curve, because new worker’s aren’t being added to the economy. it’s just that more workers are working now!
What happens to the PPC if more workers are ADDED to the economy?
The PPC curve shifts!
What is demand?
the different quantities that consumers are willing and able to buy at different prices
What is the Law of Demand?
There is an inverse relationship between the price and the quantity of demand. (As price goes up, quantity goes down and vice versa)
the Law of Demand is represented by a ‒‒- slope on a graph
downward
T or F: On the demand graph, if something other than the price changes the demand curve could shift
True
What happens to the demand curve if there are more buyers?
Price curve shifts to the right; with every single price, people are willing to buy more
What happens to the demand curve if the product is bad/makes people sick (for ex)?
Curve shifts right; at every single price, people are able and willing and able to buy less
What are the 5 shifters (determiners) of demand?
- Consumer preferences
- Number of consumers
- Income of consumers
- Prices of related goods
- Future expectations of consumers
T or F: Price changes the curve
FALSE! Price doesn’t change the curve!
A change in price causes in a change in the ‒‒- demanded
Quantity demanded
What is supply?
The different quantities that producers are willing and able to sell at different prices
What is the Law of Supply?
There is a positive relationship between the price and the quantity demanded (Price increase, producers produce more; price decrease, producers produce less)
What are the 5 supply shifters?
- Prices of resources
- Technology
- Number of producers
- Expectations (profit wise)
- Government policies and intervention (taxes, subsidies, regulation)
The Law of supply is represented by a ‒‒- slope on a graph
upward
What is equilibrium price?
the only price where the quantity demanded equals the quantity supply
Describe the chain reaction when price is too high (above equilibrium)
When price is too high, there’s a surplus and eventually prices will fall. Because sellers have all these extra units, they’re gonna lower the price so people will buy them.
Where price is too low (below equilibrium = shortage)…
eventually the consumers will bid up the prices and they’ll go up
T or F: Always assume that we’re at price and quantity equilibrium unless something weird’s going on in the market
True
What are the assumptions that come with the PPC?
- Resources are fixed
- Technology is constant
- All resources are fully and efficiently used
- Two goods are produced
- A company/economy wants to produce the products
