Unit 1: Basic Economic Concepts

Question 1

Economics

Answer 1

The study of scarcity and choice

Question 2

Scarcity

Answer 2

Humans have unlimited desires, but limited resources which leads to them having to make a choice

Question 3

Macroeconomics

Answer 3

The study of the large economy as a whole or economic aggregates

Question 4

What are the four factors of production?

Answer 4

Land, labor, capital, entrepreneurship

Question 5

Land

Answer 5

All the natural resources that go into producing a good or service

Question 6

Labor

Answer 6

Any effort a person devotes to a task for which that person is paid

Question 7

Physical Capital

Answer 7

The human made resources used to produce goods and services

Question 8

Human Capital

Answer 8

The skills and knowledge a person gains through education and experience

Question 9

Entrepreneurship

Answer 9

A leader who uses the other factors of production to create goods and services

Question 10

Price vs Cost

Answer 10

The amount that the consumer/buyer paid vs the amount that the seller paid to produce that good/service

Question 11

Investment

Answer 11

The money spent by businesses to improve their production

Question 12

Consumer vs Capital Goods

Answer 12

direct consumption vs indirect consumption

Question 13

Trade offs

Answer 13

All the alternatives to the choice you’re making

Question 14

Opportunity Cost

Answer 14

The next best alternative to the choice you’re making

Question 15

The PPC

Answer 15

A production possibilities curve is a model that shows the alternative ways an environment can use its resources by depicting opportunity costs, scarcity, trade-offs, and efficiency

Question 16

4 Key assumptions of the ppc

Answer 16

• Fixed technology
• Fixed resources
• Full employment of those resoucres
• Only two goods can be produced

Question 17

Constant Opportunity Costs

Answer 17

When resources are adaptable to producing either good leading to a straight line PPC

Question 18

Laws of Increasing opportunity costs

Answer 18

As the production of one good increases, the opportunity cost/forgone production of the other good also increases because goods are not easily adaptable to creating the other resource

Question 19

3 Shifters of the PPC

Answer 19

• Changes in trade (allows for more consumption)
• Changes in tech (rarely decreases production)
• Changes in resource quality or quantity

Question 20

Demand

Answer 20

The different quantities of goods that consumers are able and willing to purchase at different prices

Question 21

T

The law of demand

Answer 21

There is an inverse relationship between price and quantity demanded

Question 22

5 shifters of demand

Answer 22

1. Tastes and preferences
2. Income (Normal and inferior goods)
3. Future expectations
4. Number of consumers
5. Price of Related Goods (substitutes and complements)

Question 23

What is it and the relationship

Substitutes

Answer 23

Goods that can replace one another. If the price of a substitute increases, the demands for the main good increases and vice versa

Question 24

What is it and the relationship

Complement

Answer 24

Goods that are bought and used together. As the price of a complement increases, the demands for the main good decreases and vice versa.

Question 25

What is it and the relationship

Normal goods

Answer 25

Luxury goods. As icnome increases, demand for luxury goods increase and vice versa

Question 26

Inferior Goods

Answer 26

Regular, ordinary goods. As income increases, demand for inferior goods decreases and vice versa

Question 27

Supply

Answer 27

The different quantities of goods that sellers are able and willing to sell at different prices

Question 28

The law of supply

Answer 28

There is a positive relationship between price and quantity supplied

Question 29

5 shifters of supply

Answer 29

1. Price/availability of resources
2. Gov regulations (taxes and subsidies)
3. Number of sellers
4. Technology
5. Expectations of future profits

Question 30

The double shift rule

Answer 30

If the supply and demand curves shift at the same time, either the price or quantity demanded will be indeterminate