AP ECON MICRO UNIT 1

Ceteris Paribus

"other things equal", all other variables remain unchanged

A shift in the PPC can be caused by...

- Change in resource quality or quantity - Change in technology

Labor (factor of production)

-Human effort for which a person is paid (mental or physical) EX: wages, salaries

capital (factor of production)

-Human made goods or knowledge used in production EX: Interest and dividends

entrepreneurship (factor of production)

-Leaders who combine or organize other factors of production EX: Bill gates, steve jobs, etc

Land (factor of production)

-Natural resources used in production - Rental income EX: Water, trees, minerals

An increase in which of the following would cause an outward shift of the production possibilities curve for consumer goods and capital goods? a) an increase in demand for consumer goods b) an increase in taxes on consumers c) a decrease in unemployment d)an increase in resources to produce capital goods e) the efficient production of consumer goods

D

The study of economics is best described as a. the methods used to supply our limited material wants with unlimited physical resources b. the methods used to disseminate limited resources among a populations scarce material wants c. how to best predict the changes in the stock market d. how to supply our unlimited wants with limited resources e. the interaction and allocation of limited resources and market structures

D

True or False AN increase in the amount of resources available to Tom for use in producing coconuts and fish does not change his production possibilities curve

False

per unit opportunity cost

Per unit opportunity cost = opportunity cost/units gained

Microeconomics

Study of small economic units such as individuals, firms, and industries EX: supply and demand in specific markets, production cost, labor markets

Economics

The study of scarcity and how it forces individuals, firms, and governments to make choices

Assume the price of a candy bar is $2 and the price of a bag of chips is $3. Assume Lilly's marginal utility from consuming an additional candy bar is 10 utils and her marginal utility from consuming an additional bag of chips is 12 utils. If Lilly is spending her fixed weekly allowance on candy bars and bags of chips, which of the following actions will maximize Lilly's total utility? A) Buying more candy bars and bags of chips B) Buying more candy bars and fewer bags of chips C) Buying fewer candy bars and more bags of chips D) Buying fewer candy bars and bags of chips E) Buying the same number of candy bars and bags of chips

a

mineral deposits, human capital, entrepreneurship, and use of technology and machinery are all examples of? a. factors of production b. material wants and needs c. public goods d. normative economics e. unlimited resources

a

Util

a (theoretical) unit of satisfaction

in which way does a straight-line PPC differ from a concave PPC? a) a straight line PPC has a decreasing opp. cost b) A straight line PPC has a constant opp. cost c) A straight line PPC does not show opp. cost d) a straight line PPC curve does not show opp. cost e)Upward-sloping PPC

b

which of the following statements is most accurate? a. normative statements focus on facts while positive statements involve value judgments b. normative statements involve value judgements while positive statements focus on facts c. normative and positive statements both focus on facts and neither involve value judgments d. normative and positive statements both involve value judgments and neither focuses on facts e. normative statements involve value judgments and focus on facts while positive statement only focus on facts

b

Traditional Economy

based on customs and/or traditions often suffer from inefficiencies and/or lack of growth due to low competition

postive economics

based on facts and avoids value judgements EX: the equilibrium price of milk is currently $2.50 per gallon

True or false points inside a production possibilities curve are efficient and points outside a production possibilities curve are inefficient

false

6 economic goals

freedom, efficiency, equity, growth, security, stability

normative economics

includes value judgements ex: the price should be $6 per gallon to give dairy farmers a higher living standard and to save farm family

market economy

individuals decide based on supply/demand Most efficient production of the goods that consumers want, produced at the lowest prices and highest, but may exacerbate inequalities

Is it macro or micros? Positive or normative? increases in personal tax rates hurt middle class workers

macro, normative

the price of cars is rising in spite of a recent recession

micro, positive

absolute advantage

producer who can produce the most output OR requires the least amount of inputs (resources)

Production efficiency (PE)

production in least costly manner - any point ON the PPC

Allocation Efficiency

production that is most desired by society - Optimal point on PPC

law of increasing opportunity cost

states that as we shift factors of production from making on good or service to another, the opportunity cost of producing the second increases

Macroeconomics

study of the large economy as a whole or economic aggregates Ex: economic growth, government spending, inflation, unemployment, international trade

utility maximizing rule

the consumer's money should be spent so that the marginal utility per dollar of each goods equal each other

opportunity cost

the most desirable alternative given up as the result of a decision

Terms of Trade

the price of one good in terms of the other that two countries agree to trade at look at the two opp. costs and choosing a number that falls between the opp. cost

comparative advantage

the producer with the lowest opportunity cost

What are economic systems?

traditional, command, market, mixed

True or False a technological change that allows Tom to catch more fish relative to any amount of coconuts gathered results in a change in his production possibilities curve

true

Utility

A consumers measure of personal satisfaction

Production Possibilities Curve (PPC)

A model that shows alternative ways that an economy can use its resources

Trade-off

ALL the alternatives we give up when we make a choice

factors of production What are the factors of production (4)

All things required to produce goods and services land, labor, capital, and entrepreneurship

command economy

An economic system in which the government controls a country's economy. There is a shortage of goods that consumers want, often produced at higher prices and lower quality

mixed economy

An economy in which private enterprise exists in combination with a considerable amount of government regulation and promotion. more efficient production often produced at lower prices and higher quality, but government provides some essentials/regulates some production

If the production possibilities curve is concave from the origin (or bowed out), then economists say that a) resources are scarce in the economy b) resources are not equally suited for the production of both goods c) economic growth is occurring in the economy d) resources are being inefficiently used e)resources are equally suited for the production of either good

B

law of diminishing utility

each successive unit of a good or service consumed adds less to total utility than the previous unit

Scarcity

Limited quantities of resources to meet unlimited wants

Is it macro or micros? Positive or normative? Congress should lower taxes to allow consumers to keep more of their income

Macro, Normative

Is it macro or micros? Positive or Normative? The unemployment rate is holding steady at 7.2%

Macro, Positive

Is it macro or micros? Positive or normative? Microsoft will be sending one million tables to Germany

Macro, positive

marginal analysis

Make decisions by comparing the marginal (additional) cost and marginal (additional) benefits of every choice. Based on increments (the impacts of +/- one)

Is it macro or micros? Positive or normative? colleges should lower the tuition for freshman and sophomores

Micro, Normative

3 economic questions

What to produce? How to produce? For whom to produce?

marginal benefit

additional benefit of doing one unit more

marginal cost

additional cost of doing one unit more

Atlantis can produce either 2 tons of grain or 4 cars with 10 units of labor. Zoltar can produce either 5 tons of grain or 25 cars with 10 units of labor. Based on this information, which of the following is true. a) atlantis has an absolute advantage in the production of grain, while zoltar has the CA in the production of grain b) atlantis has the CA in the production of grain while zoltar has the CA in the production of cars c)atlantis has an AA in the production of grain while zoltar has a CA in the production of cars d) atlantis has a comparative disadvantage in the production of both goods e) neither country has a comparative advantage in the production of either good

b

When one decision is made, the next best alternative not selected is called a. economic resources b opportunity cost c. scarcity d. comparative disadvantage e. production

b

according to the theory of comparative advantage, goods should be produced where... a) its explicit cost are the least b) its opportunity costs are the least c)the cost of real resources used is the least d) production can occur with the greatest increase in employment e) production can occur with the lowest increase in employment

b

assume a consumer is spending all her income on two goods: X and Y. At the current consumption combination of the two goods, if the marginal utility per dollar spent on the last unit of good X exceeds that of the marginal utility per dollar spent on the last unit of good Y, what should the consumer do to maximize utility? a)purchase more units of X and more units of Y b) PUrchase more units of X and less units of Y c) decrease the price of good X d) increase income to buy more of both good X and Y e) nothing; utility is maximized at current consumption bundles

b

economists are most likely to disagree over a. opportunity cost b. normative statements c. positive statements d. normative and positive statements e. they seldom disagree over either normative or positive statements

b

output method

compares the amount of final output produced for each good on the PPC. Producing greater output gives absolute advantage

input method

compares the amount of inputs required to produce each good on the PPC. using less input per item gives absolute advantage

before his senior year of high school, Rahul decided to enroll in a summer program at the local community college rather than to work a job that offered a salery of 2000 for the summer. If the tuition and fees for his summer program are 1200, the opportunity cost of attending the community college is ? a. 800 b. 1200 c. 2000 d. 3200 e. 4000

d

in contrast to a market economy, a command economy relies on which of the following a. the private sector in deciding what goods will be produced b. private ownership of resources c. profits as incentives to make choices d. the government to allocate resources e. supply and demand to determine the prices

d

northville HS decides to build a new performing arts cent. What would be the opportunity cost of the performing arts? a. the money used in the construction of the performing arts cent b. the cost of building the performing arts center now rather than waiting until next year c. all other goods or services that cannot be provided right now due to the resources used for the new performing arts center d. cannot be determined whiteout knowing what other options the school considered e. none of the above

d

which of the following statements correctly describes the economic concept of scarcity I. scarcity means that a society has limited resources II. scarcity exists when a society must choose how to best use their resources III. scarcity would not exist if the government decided how best to use all resources a. I only b. II only c. III only d. I and II only e. I, II, III

d

an opportunity cost is entailed in which of the following situations I. a student decides to attend college full time II. a family uses its $20,000 savings to purchase an automobile III. a farmer decides to grow more wheat and less corn a. I only b. II only c. III only d. I and III only e. I, II, and III

e

mike can make 2 surfboards per hour or 10 bikes per house, and joe can produce 4 surfboards per hour and 12 bikes. Which of the following is true? a) mike has an absolute advantage in surfboards b) mikes opp. cost for producing one bike is 5 surfboards c) joe has a comparative advantage in both surfboards and bikes d)mike has a comparative advantage in surfboards e) joes opp. cost for producing one surfboard is 3 bikes

e

which of the following would cause a leftward shift of the PPC? a) an increase in unemployment b) an increase in inflation c) an increase in capital equipment d) a decrease in consumer demand e) a decrease in working age population

e