Microeconomics Quiz #1

Production possibilities culver (ppc)

A ppc identifies every combination of two goods that can produce using resources fully and efficiently.

Opportunity Cost

The lost value of the best alternative that was not chosen.

Law of Increasing Cost

To produce constant additions of any good, we must give up greater and greater amounts of another good.

Law of Demand

There is an inverse relationship between the price of a good and the quantity demanded for that good.

Substitute Goods

Goods that can be used in place of one another.

Complementary Goods

Goods that we can use together in consumption.

Law of Supply

There is a direct relation between price and quantity supplied.

Equilibrium Price

The only price at which the quantity demanded equals the quantity supplied.

Equilibrium Quantity

Both the quantity supplied and the quantity demanded at the equilibrium price.

Price Floor

Government sets a price to help producers, Price floor is above the free market (equilibrium price) - favors producers

Price Ceiling

The maximum price set by the government below the free market price (equilibrium price)-favors consumers