Basic Economic Concepts:

3 shifter of PPC

1) Change in resource quality or quantity 2) Change in Technology 3) Change in Trade

Per unit opportunity cost

= opportunity cost/units gained

Plot the combination with 20 cars and 40 trucks and label it "X." Plot the combination with 25 cars and 20 trucks and label it "y." Explain what is happening at these points.

At y, there is almost a balance of cars and trucks in production. At x, there are twice as many trucks in production.

Four factors of production

Capitol- any manufactured goods used to make other goods Enterprise- people who create business and service Labor- people who work Land- natural resources

Consumer goods and capital goods.

Consumer goods is when you buy coffee from starbucks. Capital good is the machine used to grind the coffee.

Demand

Demand is an economic principle that describes a consumer's desire and willingness to pay a price for a specific good or service.

Why is supply upward sloping?

Diminishing marginal utility. When prices and quantity are low, but as price and profits increase, supply increases as well creating an upward curve.

Equilibrium, shortage, surplus

E-> Qd=Qs Shortage-> Qd>Qs Surplus-> Qd<Qs

Explain the relationship between scarcity, choices, and trade-offs

Economics is the study of scarcity. Scarcity is the condition in which our wants are greater than our resources. This results in having to make choices on how our resources are used. Choice results in a trade-off of what is necessary for what isn't.

What is the opportunity cost from point a to b in terms of guns. What about moving from b to c? What generalizations can you make?

From B to A opportunity cost is 5. The graph shows that there is a constant opportunity COST

What is opportunity cost from point a to b in terms of guns? What is the per unit opportunity cost from moving from c to e.

From a to b the opportunity cost is 0.5 a gun. The per unit opportunity cost from c to e is 1 GUNS for 1/4 butter or 4 guns for 1 butter.

What are the consequences of Ford producing at combination A? Combination G? In reality, are either combinations desirable? Why? Why not?

In combination A, you may have an excess of trucks being produced, but you have no cars. In Combination G, you may have cars in production but no trucks. Neither combinations are desirable because in both instances you are not able to produce both cars and trucks.

The Law of Diminishing Marginal utility

Marginal utility is derived as the change in utility as an additional unit is consumed meaning you the more you have a certain item, the less you'll want to keep having it. An example would be like if you were hungry and you buy five $two pizzas. The more pizzas you continue to eat, the less hungry or satisfied you'll be.

Which PPF shows increasing opportunity costs? Use numerical examples to explain why.

PPF-B because if you go from 4 butter to 5 butter you lose 15 guns whereas the constant line in A shows that when you move from 4 to 5 you only lose 5 guns. This shows B has increasing opportunity costs.

What changes quantity demand and quantity supplied?

Price

Differentiate between the following terms: Price, costs and opportunity costs.

Price is what has been paid in terms of currency to acquire a given product. Cost is the value that was given up to acquire a good or service. Opportunity cost is the most desirable alternative given up as a result of choice.

Comparative Advantage

Producer who gives up less of other goods to produce good X

Specialization

Producing a good in which you have comparative advantage over others.

Double shift in Demand and Supply

Rule: If demand decreases and supply increases, then P is indeterminate and Q goes up.

Substitutes and Complements

Substitutes are a product or service that a consumer sees as the same or similar to another product. EX Hotdogs and Hamburgers. Complements are a complementary good or service that is used in conjunction with another good or service. EX Hamburgers and french fries.

What changes in demand?

Tastes and preferences Income Number of consumers Price of related goods Expectation of future by consumers.

What changes in supply?

Technology Expectation of Future Number of producers Price and Availability of related goods Other Government Action: Taxes and Subsidies

Why is demand downward sloping?

The Law of marginal Utility, Income, and substitution effect.

The Law of Demand and the law of supply

The law of demand is when price and quantity are inversed. An example of this would be if a new business puts out it's games for a high price, less people will buy it. The law of supply is when price and quantity are not inversed. An example of this would be when college students learn computer engineering jobs pay more than English professor jobs, the supply of students with majors in computer engineering will increase.

Purpose of PPC?

To show alternative ways that an ecosystem can use it's scarce resources.

Supply

describes the total amount of a specific good or service that is available to consumers.

Exchange

giving one thing in return for another

Price ceiling

maximum ceiling price of a seller can charge for a product goal: make affordable by keeping the line below equilibrium

Price Floor

minimum legal price a seller can cell a product goal: keep price high to keep form falling to equilibrium

Absolute Advantage

producer can produce more a good X

Normal Good and Inferior Goods

- An inferior good is a type of good for which demand declines as the level of income or real GDP in the economy increases. EX: A McDonald's coffee can be an inferior good compared to Starbucks coffee. When a consumer's income drops, he may substitute his daily Starbucks coffee for a more affordable McDonald's coffee. - A Normal Good is A normal good is a good or service that experiences an increase in quantity demanded as the real income of an individual or economy rises. EX: Choosing starbucks instead of McDonald's for coffee because you're income raised.

Free market and centrally planned economies

A free- market economy is where a person has the "freedom" to choose when and where to work, what to buy(how much to buy), and so on. Centrally planned economies tell the people where to work, how much money they will make, and ration resources, goods, and services; think communism.

Explain, with examples, how your graph shows 5 concepts: Opportunity costs, efficiency, unemployment, the law of increasing opportunity costs, and economic growth.

Opportunity cost is shown because every time you lose a potential gain you're choosing the alternative production meaning every time you produce another car off the equilibrium, you lose a truck. Efficiency is shown because you see the points and curve to achieve all resources to full capacity. Unemployment is shown because if you create less trucks and cars than the curve is suggesting such as a point like Y, then that means a reason for not producing as much is unemployment. The law of increasing opportunity costs is shown because every time you move towards another point on the curve, you get an increasing opportunity cost of the opposing items. The more cars I make the higher the cost for trucks goes. It increases throughout the curve. Economic growth is shown because of the curve moving outward completely meaning the entire curve moves not just a point.

Normative and positive economics.

The statement "The government should provide every person with a car" is a normative statement because it is an OPINION on the role of the government. The statement "if the government provided every person with an american made car; it would boost the economy and create more jobs," this is a positive statement because if american car companies needed to hire more Americans to build more cars then more people would have a job and the economy would grow. FACT

Fully explain three specific situations that would shift PPF-B outward.

The technology for churning butter becomes more efficient. The population increases. The company who makes guns hires highly trained labor workers.