All Flashcards
Analyze a PPC showing trade-offs between consumer and capital goods.
Movement along the PPC shows the opportunity cost of producing more of one type of good versus the other.
Analyze a supply and demand graph showing a surplus.
Surplus indicates that the price is above equilibrium, leading to excess supply.
Analyze a supply and demand graph showing a shortage.
Shortage indicates that the price is below equilibrium, leading to excess demand.
What does a point inside the PPC indicate?
Inefficient use of resources or unemployment.
What does a point outside the PPC indicate?
Currently unattainable with existing resources and technology.
How does a shift in the demand curve affect equilibrium price and quantity?
A rightward shift increases both equilibrium price and quantity; a leftward shift decreases both.
How does a shift in the supply curve affect equilibrium price and quantity?
A rightward shift decreases equilibrium price and increases quantity; a leftward shift increases price and decreases quantity.
What does a bowed-out PPC indicate?
Increasing opportunity costs as production shifts from one good to another.
What does a straight-line PPC indicate?
Constant opportunity costs as production shifts from one good to another.
How does technological advancement affect the PPC?
It shifts the PPC outward, allowing for greater production of both goods.
What are the differences between absolute and comparative advantage?
Absolute advantage is about producing more with the same resources; comparative advantage is about producing at a lower opportunity cost.
What are the differences between explicit and implicit costs?
Explicit costs involve direct payments; implicit costs are opportunity costs of using resources.
What are the differences between productive and allocative efficiency?
Productive efficiency is producing at the lowest cost; allocative efficiency is producing the optimal mix of goods.
What are the differences between a free market and a command economy?
Free market relies on individual decisions; command economy relies on government control.
What is the difference between physical and human capital?
Physical capital refers to machinery and tools; human capital refers to skills and knowledge.
Differentiate between scarcity and shortage.
Scarcity is a fundamental condition of limited resources, while a shortage is a temporary lack of a good at a specific price.
What is the difference between microeconomics and macroeconomics?
Microeconomics studies individual decisions, while macroeconomics studies the economy as a whole.
What is the difference between normative and positive economics?
Positive economics is based on facts and cause-and-effect relationships, while normative economics incorporates subjective value judgments.
Differentiate between economic efficiency and equity.
Economic efficiency focuses on maximizing output from resources, while equity concerns the fair distribution of resources and outcomes.
What is the difference between a good and a service?
A good is a tangible item that satisfies a want, while a service is an intangible act that satisfies a want.
How does scarcity apply to deciding what to eat for lunch?
Limited money and time mean choosing one lunch option means giving up others; opportunity cost is the next best meal.
How does opportunity cost apply to attending college?
The opportunity cost includes tuition, fees, and forgone wages from not working full-time.
How does comparative advantage apply to international trade?
Countries specialize in producing goods where they have a lower opportunity cost and trade with others, increasing overall consumption.
How does marginal analysis apply to deciding how much to study?
Continue studying as long as the marginal benefit (improved grade) exceeds the marginal cost (time spent, fatigue).
How does marginal utility apply to eating pizza?
Each slice provides less satisfaction than the previous one; stop eating when the marginal utility is less than the marginal cost (feeling full).
How does scarcity affect a government's budget decisions?
Limited tax revenue forces governments to prioritize spending on programs like education, healthcare, or defense, each with an opportunity cost.
How does opportunity cost relate to starting a business?
Besides financial investment, the opportunity cost includes the salary forgone from not pursuing alternative employment.
How does comparative advantage influence career choices?
Individuals often specialize in jobs where their skills have a lower opportunity cost compared to others.
How does marginal analysis affect a firm's production decisions?
Firms increase production as long as marginal revenue exceeds marginal cost, maximizing profit where MR=MC.
How does marginal utility guide consumer spending?
Consumers allocate their budget to maximize overall satisfaction, buying goods until the marginal utility per dollar is equal across all goods.