econ all

Comparative vs. Absolute Advantage

- absolute concerns who can produce more - comparative uses opportunity cost

Explain the law of demand.

As price increases, quantity demanded decreases.

If labor costs rise in the automobile industry, which will happen to car prices and quantity of cars sold?

C. Supply will decrease. This increases price and lowers quantity.

What would happen in the competitive market for Apples (a normal good)? A successful ad campaign is launched. Changes in Demand or Movement along the curve? Demand curve shifts right, left, or no shift?

Demand Increases (Tastes) Right

SURPLUSES = PRICE

FLOOR

Explain the relationship between inferior goods - demand and price.

If income increases, demand for inferior good DECREASES

Acronym for Supply shifters

TRICE

If the market size increase, what happens to the demand?

increase

If there are more producers, what happens to supply?

increases

In a "bowed out PPC", what kind of opportunity cost is there?

increasing

Is this input or output data?

input

example of price floor

minimum wage

What model illustrates the opportunity cost?

production possibilities curve

Example of price ceiling

rent-controlled housing

Which markets do the households and firms interact with each other through?

resource market product market

Why are individuals and societies forced to make choices?

resources are scarce

Explain the relationship between substitues - demand and price.

rise in price of one good leads to increased demand of other

Law of Supply.

the price and quantity of a supplied good are positively related higher price = more supply

What does scarcity lead to?

trade-offs

Where is market equilibrium?

where supply and demand intersect

X and Y axis of a demand curve.

x = quantity y = price (y is the price flat) pq in order

What is a substitute?

you can choose either (coffee v tea)

What would happen in the competitive market for Apples (a normal good)? Consumers experience a reduction in income Changes in Demand or Movement along the curve? Demand curve shifts right, left, or no shift?

Demand decreases Shifts left (Income)

What would happen in the competitive market for Apples (a normal good)? Eating apples is credited with reducing the chance of heart disease. Changes in Demand or Movement along the curve? Demand curve shifts right, left, or no shift?

Demand increases Demand curve shifts right (Expectations)

total market value of all final goods and services produced within a country in one year

GDP

What model shows the tradeoffs associated with allocating resources?

PPC (Productions Possibilities Curve)

Who has the absolute advantage in lumbar production?

Pittsland

Who has the absolute advantage in steel production?

Pittsland

acronym for supply shift

TRICE

Who has the absolute advantage in the production of tables?

Taylor

Based on comparative advantages, who should specialize in making tables? Explain using opportunity cost

Taylor. Kelly would produce 1/2 chair in the two hours whereas Taylor would make 1/4 chair.

Explain TRICE

Tech Related Prices Input Prices Competition Expectations

What causes the PPC to shift?

changes in factors of production

What are the 2 related goods?

complements substitue

How are price and quantity demanded related?

inversely (price goes down = demand goes up)

What are the 4 economic resources, or factors of production?

land labor capital entrepreneurship

What does it mean to be scarce?

limited AND wanted

What are complements in production?

products made at the same time ex. oil wells producing natural gas as a byproduct

What is the opportunity cost: Each Saturday, you charge $20/hour to mow 5 neighbor's lawns and it takes 1 hour per lawn. One day, you stay home and watch tv instead of mow.

$100

What would happen in the competitive market for Apples (a normal good)? The price of pears (a substitute decreases). Changes in Demand or Movement along the curve? Demand curve shifts right, left, or no shift?

Demand of apples decreases Curve shifts left (Related Prices)

Explain the relationship between normal goods - demand and price.

If income increases, demand for normal goods increases.

If there is an input problem, how do you calculate the opportunity cost of item A as compared to item B? (topic 1.3)

Item A/B

If there is an output problem, how do you calculate the opportunity cost of item A as compared to item B? (topic 1.3)

Item B/A

Based on comparative advantages, who should specialize in making chairs? Explain using opportunity cost

Kelly Her opportunity cost of tables is 2 tables, but Taylor's is 4.

What acronym is used for change in demand?

MERIT

acronym for demand shift

MERIT

Break down MERIT

Market Size Expectations Related prices Income Tastes

What would happen in the competitive market for Apples (a normal good)? Eating apples reduces heart disease. Changes in Supply or Movement along the curve? Supply curve shifts right, left, or no shift?

Movement along the curve (Demand shift) No shift

What would happen in the competitive market for Apples (a normal good)? Price of apples decrease. Changes in Supply or Movement along the curve? Supply curve shifts right, left, or no shift?

Movement down No shift

What would happen in the competitive market for Apples (a normal good)? The price of apples decreases. Changes in Demand or Movement along the curve? Demand curve shifts right, left, or no shift?

Movement down the curve No shift (Price Change)

Are transfer payments (social security) and stocks/bonds included in GDP?

NO

Who has the absolute advantage in the production of chairs?

Neither

Are intermediate goods counted in GDP?

No

Does buying used products count towards GDP?

No

Is this counted in US GDP for 2006? value of a used textbook sold through online auction in 2006

No, it's used

Know this diagram!!

Ok

What are complements?

Products bought together (hot dog and hot dog buns)

FORMULA FOR SHORTAGE

QD - QS

FORMULA FOR SURPLUS:

QS - QD

Relationship between Qs and Qd in shortage

Qd > Qs

In surplus, compare Qs and Qd.

Qs > Qd

Explain the relationship between complements - demand and price.

Rise in price of one good = decreased demand for other

What would happen in the competitive market for Apples (a normal good)? Apple pickers negotiate higher wages. Changes in Supply or Movement along the curve? Supply curve shifts right, left, or no shift?

Supply decrease Shifts left (Input costs)

What would happen in the competitive market for Apples (a normal good)? Drought destroys orchards throughout the region. Changes in Supply or Movement along the curve? Supply curve shifts right, left, or no shift?

Supply decreases Shifts left (Competition)

What would happen in the competitive market for Apples (a normal good)? New machinery is developed to harvest apples more efficiently. Changes in Supply or Movement along the curve? Supply curve shifts right, left, or no shift?

Supply increases shifts right (Tech)

Assume that for consumers, pears and apples are substitutes. It is announced that pesticides used on most apples may be dangerous to consumers' health. As a result of this announcement, which of the following market changes is most likely to occur in the short run in the pear market?

The demand for pears will increase. D.

Based on comparative advantage, who should specialize in steel production and why?

The opportunity cost for Pittsland is 1/3 lumber and for Portburgh is 1/3 lumber. Doesn't matter, same opportunity cost

Based on comparative advantage, who should specialize in lumber production and why?

The opportunity cost is 30 for both, neither has the advantage

a situation in which an individual, business, or country can produce more of a good or service than any other producer with the same quantity of resources

absolute advantage

What is the opportunity cost: You do your homework instead of baking 2 dozen cookies.

baking 2 dozen cookies

shows the flow of money, goods and services, and factors of production through the economy

circular flow diagram

situation in which an individual, business, or country can produce a good or service at a lower opportunity cost than another producer

comparative advantage

a market in which there are many buyers and sellers of the same good or service, none of whom can influence the price at which the good or service is sold

competitive market

What kind of opportunity cost do we have for a linear PPC?

constant

The value of which of the following is counted in US GDP? a. clean air b. childcare a father has for child c. automobile made in Sweden by US firm d. car made in US and sold in Europe

d. car made in US and sold in Europe

If there is an increase in input, what happens to wages and supply?

decrease

the actual amount of a good or service that consumers are willing and able to buy at a specific price

demand

What are substitutes in production?

easily replacable: if heating oil price increases, produce will produce more

behavior science concerned with how scarce resources are allocated among unlimited needs, wants, and desires

economics

you can't produce more of one good without decreasing production of another good

efficient

What is the opportunity cost: You have a choice - study for a test or go to a movie with friends. You choose to study for the test.

going to the movie

income earner

household

What are the two main entities of a circular flow diagram?

households and firms

What does the shape of the PPC depend on?

if opportunity costs are constant, increasing, or decreasing

Where does production have to occur for GDP?

in the US, includes foreign-owned companies

Normal v Inferior: - what you settle on - what you want to buy

normal = what you want to buy inferior = what you settle on

What are the 2 goods related to income?

normal good inferior good

the highest valued, foregone alternative to any decision made

opportunity cost

Is this an input or output problem?

output

Does economic growth shift the PPC outward or inward?

outward

What is measured along the x-y coordinate plane of PPC?

potential output

Which government intervention creates a shortage?

price ceiling

Which government intervention creates a surplus?

price floor = minimum price

actual amount of a good or service producers are willing to sell at a specific price

quantity of supply

occurs when price is below equilibrium

shortage

price is above equilibrium level

surplus

agreed upon exchange rate of two goods between two nations

terms of trade

payments the government makes to the individual without expecting a good or service in return: social security, scholarships, grants

transfer payments

Which two financial transactions are NOT included in GDP?

transfer payments stocks and bonds

anything used to produce a good or service

wages