Unit 1 Basic economics concepts

Question 1

1.3 v3: How is it determined if the terms of trade are mutually beneficial?

Answer 1

If the terms of trade results in gains for trade for both economies.
This is determined if:

1. Output of individual productive capacity of the producer is exceeded
2. If the ability to consume beyond the PPC is realized.

In other words, will the producer see Output beyond the PPC from the terms of trade.

Question 2

1.4 v2: What the the acronym M.E.R.I.T represent?

Answer 2

It represents the factors that change demand and causes the demands curve to shift. The five factors are:
1. Market Size
2. Expectations
3. Related prices (Complementary and Substitute)
4. Income (Normal and inferior goods)
5. Tastes

Question 3

Example of comparative advantage and gains from trade:
Kelly in 8 hours can produce one table and in 16 hours can produce one chair.
Taylor in 4 hours can produce one table and in 16 hours can produce one chair.
answer the question below:
1. What kind of data is represented?
2. Who has absolute advantage? explain
3. Who has comparative advantage in table and chairs? explain

Answer 3

1. This is input data as it is data around the amount of time inputted to produce a chair.
2. Taylor as they can produce more chairs in the same amount of time as Kelly.
3. Kelly has comparative advantage in chairs because if Taylor specialized in producing chairs they would be giving up 4 tables rather in Kellys case which would only be 2 tables if she specialized in chairs.

Taylor has comparative advantage in tables as they would only give up one fourth of chair if she specialized in tables rather than the half a chair Kelly would give up if she specialized in tables.

In other words whoever has the lower opportunity cost and has less to give up if they choose to specialize in a certain production has the comparative advantage.

Question 4

1.1: What does it mean to be scarce and what is scarcity

Answer 4

To be Scarce is to be limited and wanted. Scarcity is a concept of economics which leads to trade-offs.

Question 5

Example of opportunity cost: You have two choices; mow your neighbours law for 100 dollars, finish watching a movie, or wash the dishes for 10 dollars. You decide to watch the movie. What is the opportunity cost.

Answer 5

The opportunity cost is the 100 dollars as it is the next highest value decision you could have made.

Question 6

1.4 v2: What happens to the demand curve if demand for a product goes up or down? Why does this happen?

Answer 6

The demand for the product shifts left as demand goes down and to the right as demand goes up.
This is because of how demand increase the amount of products sold but not how expensive the product is.

Question 7

1.2: what is a linear PPC and how does this relate to the opportunity cost?

Answer 7

A PPC that that is straight meaning the two goods have a Constant opportunity cost

Question 8

1.5 v2: What does an increase or decrease in supply do to the supply curve.

Answer 8

A increase in supply will shift the supply curve to the right.
A decrease in supply will shift the curve to left.

Question 9

1.2: what does it meant to have a output point fall under or over the PPC

Answer 9

To fall under the PPC means the production of Goods will not be operating at its maximum capacity of output.
To fall over the PPC means that output point is unobtainable with the current resources.

Question 10

Example of Scarcity: If there is a 90 minutes wait for a ride at an amusement park you want to go on but you only have a limited amount of time at the park, what is the trade-off and how is this an example for scarcity?

Answer 10

The trade-off is you must wait in line 90 minutes for you ride you want to go on or you leave to go on other rides. The scarcity is your time which you must make a choice to spend.

Question 11

1.5 v2: What are the Five factors that change shift the supply curve? (Hint: T.R.I.C.E.)

Answer 11

Technology
Related Prices
Input prices
Competition
Expectations

Question 12

1.5 v1: What is a supply curve and what is the curves direction?

Answer 12

A graph representing the
1. Supply in a competitive market
2. The relationship between quantity supplied and price.

The curve is a upward sloping curve.

Question 13

1.5 v1: What is quantity supplied?

Answer 13

The amount of good or services producers are willing to sell at a specific price.

Question 14

1.3: What is a comparative advantage

Answer 14

Which producer can generate the same amount while being more efficient?

Question 15

1.4 v1: What is a competitive market?

Answer 15

A market where there are so many buyers and sellers of a single product or service that no single individual company or person can influence the price at the which the service or product is sold.

Question 16

1.5 v2: Explain the five factors of T.R.I.C.E.

Answer 16

Technology:
The technology increases yield on resources will increase supply and vice versa.

Related prices:
1. Complements: Resources produced that produce other resources as a by product.
2. Substitutes: When a product has a higher price then their co-produced product it will be supplied more.

Input Prices:
Anything used to produce the service or good. Input prices will decrease supply and vice versa. Input prices and supply have a inverse relationship

Competition:
Number of other producers in the market will increase supply to that market.

Expectations:
What the producer believes will sell better over other resources.

Question 17

1.1: How do you classify capital resources and what is payment for capital

Answer 17

Capital resources are:
- Physical capital which are machinery and most commonly mentioned as Capital.
- human capital which are the skills and capabilities of workers.
- Financial capital which is money
Payment for capital is interest

Question 18

1.2: What is a Production Possibility Curve

Answer 18

A simplified model of an economy producing only two goods where potential output combinations are charted of the X-Y coordinates plane.
It describes the combination of consumer and capital goods that can be produced in an economy employing all its resources

Question 19

1.6 v1: What changes market equilibrium?

Answer 19

Changes in:
1. M.E.R.I.T shifts the demand curve
2. T.R.I.C.E shifts the supply shift
which will cause in change in market equilibrium.

Question 20

Example of opportunity cost calculation: Say a economy only produces G #1 at ten good a year and does not produce G #2.
Imagine the economy changes to need G #2 so it now produces eight of G #1 and one of G #2.
What is the opportunity cost of one G #2

Answer 20

The opportunity cost of one G #2 is two of G #1. To produce one of G #2,the resources to produce two of G #1 must be reallocated.
So, if the economy decides to start producing one of G #2 and eight of G #1 the opportunity cost of the change would be the economy continuing to produce ten G #1 and no G #2

Question 21

1.1: How do you classify labor resources and what is the payment for labor

Answer 21

Labor resources are workers.
Payments for workers are called wages.

Question 22

1.5 v1: What do movement along the supply curve represent?

Answer 22

The change of price that results in movement along the curve and a change in quantity supplied.

Question 23

1.2: What is potential output

Answer 23

the result of a production process

Question 24

1.6 v1: What is market equilibrium?

Answer 24

Where the supply curve and demand curve intersect on a graph. Commonly labeled as point A.

Question 25

1.2: What is a constant opportunity cost

Answer 25

When the opportunity cost remains constant as production of one good increases in a linear PPC.
This means that in a PPC if the economy starts producing more of one good, the other good will always have the same decrease in production every time more of the other good is produced.

Question 26

1.2: What can a Production Possibility Curve be used to represent

Answer 26

A picture of an economy at certain times. This includes what resources are being used efficiently and resources that are not.
Priorities of what goods the economy is focusing on is also represented at the time.

Question 27

1.1: What are the Factors of production

Answer 27

The input prices for production. They include:
- Land
- Labor
- Capital
- Entrepreneurship

Question 28

1.6 v2: What is a shortage, how does it occur, and how would you calculate the value of it?

Answer 28

Shortages occur when price goes below the equilibrium level.
when quantity demanded (Qd) > quantity supplied (Qs) it leads to a shortage.

Shortages are created through government intervention within a market.

to calculate shortages would be (Qd) - (Qs)

Question 29

Example of the law of demand:

The price for a T-shirt a shopping mall at any point in the year can be:
1$, 3$, 5$, 6$, and 8$

At what price of the T-shirt will the demand be the highest, lowest, and medium?

Answer 29

As prices go up, demand goes down this means:
At 1$ demand will be the highest.
At 5$ demand will be medium.
At 8$ demand will be the lowest

Question 30

1.1: How do you classify land resources and what is the payment for this land

Answer 30

Land resources are any naturally occurring resources or nature resources.
Payment for land is called rent.

Question 31

1.4 v3: What shifts the demand curve?

Answer 31

Changes in market that affect M.E.R.
I.T

Question 32

1.2: What do changes in where a economy is on a PPC represent?

Answer 32

They represents trade offs as production of one resources cannot increase without the other decreasing.

Question 33

1.1: What is payment is terms of resources

Answer 33

The incentive or cost of having certain resources

Question 34

1.6 v2: What is an example of a government intervention within a market causing a shortage?

Answer 34

An example would be a government creating a new price ceiling or a new maximum price.
This includes lowering the maximum price on new rent controlled houses that are priced too high which would create a shortage of people willing to supply the houses.

Question 35

1.4 v2: Explain the factors of M.E.R.I.T

Answer 35

1. Market size is the number of consumers.
2. Expectations is what the consumer expects to receive from the product both good and negative.
3. Related prices:
   Complementary is the demand of a produce goes down when the price of the complementary produce goes up.
   Substitute is the rise of price of one product lead to a increase demand of the substitute product.
4. Income is what the consumer buys depending on their income. These purchases are divided into two categories.

Normal goods = What the consumer wants to buy and will buy if income is good leading to increase demand in the normal produce.

Inferior goods = What the consumer settles on and will buy if income is low leading to increase demand for the inferior good.

5. Tastes (Products that are trending popularly and negatively)

Question 36

1.1: What kind of world be we live in regarding resources and how does it relate to trade-offs?

Answer 36

We live in a world of scarcity where resources are limited while human desire and need for these resources are unlimited.

Trade-offs are choices of where to most efficiently allocate these resources.

Question 37

1.4 v1: What is quantity demand?

Answer 37

The amount of the product or service consumers are:
1. Willing to buy
2. Able to afford at a set price.

Question 38

1.1: What is Economics

Answer 38

Economics is the study of decisions and trade-offs forced by scarcity at a individual (micro) and aggregate (macro) level.

Question 39

1.2: What can we assume from the curve in a Production Possibility Curve

Answer 39

A economies:
- Productive capacity
- Resource utilization
- Opportunity cost
- Specialization

Question 40

1.4 v1: What is the law of demand?

Answer 40

A price increases demand decreases and vice versa. In other words, price and quantity demanded are inversely related

Question 41

Example of terms of trade:

Country X produces 25 cars and 50 apples
Country Y produces 50 cars and 200 apples

Country X Has 10 cars and 30 apples
country Y Has 10 cars and 160 apples

If the terms of trade state that 1Car = 3Apples answer

1. Who has comparative advantage for apples and Cars
2. Describe how they might benefit from the the terms of trade

Answer 41

Since:
1Car = 2Apples for Country X
4Apples = 1 Car for Country Y

If:
Both Country agree to specialize production based of their comparative advantages which are:
Country X has comparative advantage in Cars
Country Y has comparative advantages in Apples

Then:
The amount of production of the two Countries will be:
Country X has 25 Cars
Country Y has 200 Apples

After:
The Countries will trade resulting in:
Country X will lose 10 Cars but gain 30 apples.
Country X will lose 30 Apples but gain 10 Cars.

Resulting:
In a beneficial trade for both countries as:
Country X profits 5 Cars
Country Y profits 10 Apples

Question 42

1.6 v2: What is a surplus, how does it occur, and how would you calculate the value of it?

Answer 42

Surpluses occur when price goes above the equilibrium level.
when quantity supply (Qs) > quantity demanded (Qd) it leads to a surplus.

Surpluses are created through government intervention within a market.

To calculate a surplus would be (Qs) - (Qd).

Question 43

1.6 v2: What is a an example of a government intervention within a market creating a surplus?

Answer 43

An example would be a government creating a new price floor or a new minimum price.
This includes setting a new minimum wage which would create a surplus of unemployed workers due to quantity supplied being greater than quantity demanded.

Question 44

1.1: How do you classify entrepreneurship resources and what is payment for entrepreneurship

Answer 44

Entrepreneurshipis the ability to combine resources to satisfy societies wants, needs,problems, and desires. Entrepreneurship requires risk-taking and decision making.
Payments for entrepreneurship is profit

Question 45

1.3: What are Output problems and what are the formulas to calculate opportunity cost from them

Answer 45

Problems that revolves around data representing Output produced from a fixed amount of Input.

The formula to calculate the opportunity cost from them is: Opp. Cost (A) = B/A

Question 46

Example of terms of trade:

Country X produces 25 cars and 50 apples
country Y produces 50 cars and 200 apples

What would be a mutually beneficial terms of trade? Explain in detail.

Answer 46

1Car = 2Apples for Country X meaning Country X must sell the Car for more than 2 apples to make a profit

4Apples = 1 Car for Country Y meaning Country Y must buy a car for below 4Apples to make a profit.

This means if Country X and Y agree that the terms of trade will be 1Car = 3Apples then they will have a mutually beneficial terms of trade

Question 47

1.2: What can people assume if a output lays on or under the Production Possibility Curve (PPC)

Answer 47

It means we can assume the economy of two goods are operating efficiently or inefficiently if the output point does lay or lays under the curve.

Question 48

1.3 v3: What are terms of trade?

Answer 48

An agreed upon exchange rate of two goods between producers.

Question 49

1.3: What is a absolute advantage

Answer 49

Which producer can generate more with the same amount of input?

Question 50

1.1: What are resources

Answer 50

Resources are something used to produce something else. Resources are limited and wanted making them scarce by nature.

Question 51

1.3: what are input problems and what are the formulas to calculate opportunity cost from them

Answer 51

Problems that revolves around data representing Input required to to produce a fixed amount of Output.

the formula to calculate the opportunity cost from them is: Opp. Cost (A) = A/B

Question 52

1.5 v1: What is the law of supply? What is the relationship between price and quantity?

Answer 52

The higher the price of product or service the more suppliers are willing to supply.
Price and quantity of goods are positively related.

Question 53

1.2: What is opportunity cost and where do they come from

Answer 53

It is the highest value decision you did not make. In other words it is what you could have done or acquired.
Results from the decision in Trade-offs you did not make.

Question 54

1.4 v3: What causes movement along the demand curve?

Answer 54

A change in price will cause movement along the demand curve and a change in demand.

Question 55

1.4 v1: What is a Demand Curve?

Answer 55

It is a graph that:
1. Represents the demand of the competitive market.
2. Shows relationship between demand quantity and price.

Question 56

1.2: what is a concave PPC

Answer 56

A PPc that has a concave line to the origin meaning the two goods have a increasing opportunity cost

Question 57

1.2: What does it mean to be efficient in a economic context

Answer 57

That something cannot produce one good without decreasing the amount of production of the other.
Efficient production means goods are being produced at the maximum while inefficient production means goods are being produced but they could be increased more without detriment.

Question 58

1.2: What is increasing opportunity cost

Answer 58

A increasing opportunity cost means that to increase the production of one good, the production of the other good must decrease at a increasing amount every time one more unit of the other good is added to production.