Studied by 10 people
scarcity
a limit in the amount of goods and services
causes us to make choices because of restricted options
opportunity cost
sacrificing some goods or services in favor of another
getting something at the cost or expense of another thing (the actual good)
usually the best option
utility
benefits of consuming a good or service, usually after making a purposeful, rational decision
marginal
extra, additional, or a “change in”
trade-off
exchanging one good or service for another
making a choice!
Opportunity Cost Graph
linear graph
linear = constant
attainable
inside of linear graph
NO OPPORTUNITY COST AVAILABLE
unattainable
outside of linear graph
OPPORTUNITY COST AVAILABLE
4 Factors of Production:
Land
Labor
Capital
Entrepreneurial Ability
PPC
Production Possibilities Curve
Why does the PPC graph have a “bowed” shape?
the Production Possibilities Curve shows a “bowed” shape to it due to it representing INCREASING OPP. cost
efficiency
ON PPC curve
inefficiency (“inside”)
inside PPC curve
Unemployment Rate
4-5%: acceptable rate of unemployment; still on curve
7%: unacceptable rate of unemployment
Growth represented on PPC
outward shift on PPC
Ways to create an outward shift (showing growth) on PPC:
produce more goods & services
increase either the quantity OR quality of the factors of production
savings
don’t consume all of your resources
investment
firms purchase capital equipment to expand production of goods & services
ex: govt. spending on INFASTRUCTURE
What may cause Economic Growth?
a higher-educated workforce
increased imports from foreign countries
increased exports to foreign countries (to facilitate modern trade)
increased production of goods and services
keeping unemployment rate at the correct level
supporting new businesses and startups
As the production of goods increases, what happens to the opportunity cost?
opp. cost INCREASES
ex: As output of scooters increased, the opportunity cost of additional scooters increases
(Khan Academy): Which of the following best captures the idea of the fundamental economic problem?
limited resources and unlimited wants
(Khan Academy): Business profits should be redistributed through taxes to benefit more of society.
yes; a society benefits through taxes, because most societal goods and services are paid for by the taxes the government collects from the society itself.
(Khan Academy): Which of the following is an accurate representation of economic growth?
an increase in both the potential and actual level of output of goods and services over time
supply
price - QUANTITY supplied are directly related
demand
price - QUANTITY demanded are inversely related
law of supply
price & quantity supplied are DIRECTLY related
law of demand
price & quantity demanded are INVERSELY related
diminishing marginal utility
“decreasing additional satisfaction”
ex: the 1st slice of pizza is always the best; however, the more you eat, the more you satisfaction decreases
Consumer behavior when the price suddenly goes down…
ex: Moe’s Monday
Description: Moe’s is a burrito/Mexican fast food chain, similar to Chipotle. Every Monday, they lower the price of a burrito, drink, and complementary side from the original price of $12 to $6.
Outcome: More consumer demand on Monday at Moe’s
Why: More people going to Moe’s on Monday doesn’t mean more people suddenly like Moe’s; since the price is suddenly low, more people are willing to buy from Moe’s on Monday, thus increasing demand at Moe’s and decreasing consumer demand at substitutes, such as Chipotle.
Changing Demand on Demand Curve
changing demand: getting more consumers to regularly buy/consume certain goods
left-sided shift on Demand Curve
Decreasing Demand on Demand Curve
right-sided shift on Demand Curve
5 ways to increase Demand (Acronym):
Preferences
Related Goods: Substitutes & Complementary Goods
Income: Superior (Normal) & Inferior Goods
Consumer #’s
Expectations
5 ways to increase Supply (Acronym):
Resource Prices
Other Goods (Similar in Price)
Technology (Production)
Taxes & Subsidies
Expectations (of Producers)
Number of Sellers/Suppliers
substitute
a SIMILAR business
complementary good
something that goes with the good being bought
What would happen if a substitute business happened to lower its prices?
If a substitute lowers its prices, the other substitutes would get less customers, whether this price change was temporary, weekly, monthly, yearly, or permanent. Consumer behavior is all based on their expectations, the price, and the quality.
Supply Curve Features
right: increase of supply
left: decrease of supply
subsidy
you pay a reduction of the original price; therefore, someone else must pay the rest of the original price
ex: MRHS acquires laptops from Lenovo. Each laptop is $800, but you pay $400 instead. The remaining $400 that is paid for by the school is the subsidy.
equilibrium
where supply and demand are EQUAL
equilibrium price
point where demand and supply curve meet
dual movements
you can only have either supply or demand!
if one is different, then it’s INDETERMINATE
Note
Flashcard