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| Question | Answer |
| Why does scarcity exist? | human wants exceed the resources available to satisfy them. |
| What is included in the study of microeconomics? | coping with scarcity, and choices made as a result of scarcity in a society. |
| How do economists define opportunity cost? | the benefits of the highest-valued alternative forgone |
| What do economists call the additional benefit of increasing some activity by one unit? | marginal benefit. |
| How do economists classify items bought by individuals to provide personal enjoyment? | Consumption goods are goods and services that are bought by individuals and used to provide personal enjoyment and contribute to a person’s quality of life |
| To what does the term ‘capital’, as a factor of production, refer? | The physical goods used to produce other goods and services. |
| To what does the phrase ‘human capital’ refer? | Human skills, that is, the quality of labor. |
| What two groups of decision makers are represented in the basic circular flow model? | Households and Firms |
| In the circular flow model, in what direction do the various things shown in the model flow? | |
| What does the production possibilities frontier illustrate? | maximum combinations of goods and services that can be produced. |
| What is true of all the points on the PPF? | There are attainable and area a boundary that shows the maximum combo production output with given tech and resources |
| How is the shape of the PPF related to the idea of increasing opportunity cost? | The fact that as the production of one good or service increases, its opportunity cost increases means that the production possibilities frontier will be bowed out. Only if the opportunity cost remained constant as the production of a good increases would the production possibilities frontier be a straight line. |
| How is the shape of the PPF related to the idea of increasing opportunity cost? | The production possibilities frontier is bowed out because resources are not equally productive in all uses. The resources used to produce robots are different from the resources used to produce pizzas. Thus, as more of one good is produced, say robots, less productive resources must be used to increase the number of robots produced. Hence the opportunity cost of the additional robots increases, which gives the production possibilities frontier a bowed out shape. |
| What is the opportunity cost of economic growth? | Consumer Consumption |
| 4. How is the shape of a typical production possibilities frontier related to the opportunity cost of producing a good? | The magnitude of the slope of the PPF measures the opportunity cost. Because the PPF is bowed outward, its slope changes and gets steeper as the quantity of one of the product increases. |
| How do economists define comparative advantage? | is the ability of a person to produce a good at a lower opportunity cost compared to another person. A lower opportunity cost means that the person gives up less to produce the good compared to another person |
| What do economists mean by the phrase ‘quantity demanded’? | The one quantity that is demanded at several different prices (A movement along the demand curve that reflects the change of quantity depending on the price of the good) |
| How is the price of a substitute related to the demand for a good? | Demand for a good increases when the price of the substitute increases (People want to pay less. |
| How is the price of a complement related to the demand for a good? | When the price of a complement rises the demand for a good decreases because it becomes more expensive to buy both things that come as a package |
| Complement Good | The complement of a good is another good that is consumed with it (Soccer Balls and Soccer shoes) |
| Substitute Good | A substitute for good is another good that can be consumed in its place (Chocolate Cake is a sub for Cheesecake) |
| What is the law of supply? | Other things remaining the same, If the price of a good rises, the quantity supplied of that good increases. If the price of a good falls, the quantity supplied of that good decreases. |
| What things will increase the supply of a product? | lower prices for the resources used to produce the product |
| How is the cost of producing a product related to the supply of that product? | the more it costs to produce a good, the smaller is the supply and V.V. |
| What has to be true for market equilibrium to occur? | the quantity demanded equals the quantity supplied. |
| What happens in a competitive market when there is a surplus of the product? | The quantity demanded for a product is less than the quantity supplied so producers lower the price of a good to sell it to gt back to market equilibrium |
| What situation develops if the price of a product is below the equilibrium price? | A shortage. The quantity demanded is more than the quantity supplied |
| What does the price elasticity of demand measure? | buyers' responsiveness to changes in the price of a product. |
| When a firm raises the price of its product, what happens to its total revenue? | If demand is elastic, total revenue decreases |
| What formula do we use to calculate the price elasticity of demand? | Percentage Change of Quantity ________________ Percentage change of Price |
| Percentage Changes | (New Quant/Price) - (Initial Quant/Price) ___________________ (New + Intial) X 2 Then X 100 for % |
| What does the price elasticity of supply measure? | The price elasticity of supply measures how responsive producers are to changes in the price of a product. |
| What does the supply curve look like when supply is perfectly inelastic? | It would be vertical line on the axis |
| What does cross elasticity of demand measure? | demand for a product changes when the price of a substitute or complement changes. |
| If a product is a normal good, what can we say about its income elasticity of demand? | positive |
| If the cross elasticity of demand is negative, what can we say about the goods involved? | There inferior goods |
| Coffee at a coffee shop is allocated to individuals in society through what type of method? | In a resource allocation method called first come first served |
| When do we know that allocative efficiency has been achieved in the production of a good? | When its on the PPF and one point on the PPF showing the most highly valued products are made |
| How is the principle of decreasing marginal benefit related to the shape of the marginal benefit curve? | Marginal benefit measures how much people are willing to give up for a certain quantity. The less quantity the more people are willing to give up to get the product but as more quantity the less people are willing to get for it. (Limited Edition Product vs. Mass Prod. Product) |
| To an economist, what does the word ‘value’ refer to? | Value is the marginal benefit obtained |
| What do we call the difference between the marginal benefit from a good and the price of the good? | Consumer Surplus |
| To an economist, what is the difference between the terms ‘cost’ and ‘price’? | Cost is what must be given up to produce a good, and price is what a seller receives when the good is sold. |
| If marginal benefit is equal to marginal cost, then what can we say about producer and consumer surplus? | Allocation Efficiency and that also means that there at market equilibrium |
| What do economists mean by the big tradeoff’? | is a tradeoff between efficiency and fairness that recognizes the cost of making income transfers. (efficiency and fairness) |
| How is producer surplus shown graphically? | |
| What does a budget line show | describes the limits to consumption choices and depends on a consumer’s budget and the prices of goods and services (What you can afford and can't afford) |
| What happens to the budget line if a consumer's budget increases | The line shifts right |
| If one of the products a consumer buys rises in price, what happens to the consumer's budget line? | The line will move inward and the other point will remain the same |
| To what does the phrase ‘relative price’ refer? | Opportunity Cost or which is the price of one good in terms of another good |
| To what does the term ‘utility’ refer? | is the benefit or satisfaction that a person gets from the consumption of a good or service |
| How can we use marginal utility theory to find the demand curve? | Becuase the more you consume the less marginal utility you receive from it so every time you get more the less you get back and that's reflected in the demand curve |
| How do we calculate marginal utility per dollar? | ,we divide the marginal utility from a good by its price. (Marginal Utility) _______________ (Price of Good) |
| To what does the phrase ‘marginal utility’ refer? | is the change in total utility that results from a one-unit increase in the quantity of a good consumed. |
| What is the solution to the paradox of value? | ? |
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