Unit 1: Basic Economic Concepts (copy)

What is economics?

The study of how people, firms, and societies use their scarce productive resources to best satisfy their unlimited material wants.

Define scarcity in economics.

Scarcity refers to the limited availability of factors of production, which means that the production of goods and services is also limited.

What does macroeconomics study?

Macroeconomics considers the big picture, focusing on a nation's economy as a whole.

What does microeconomics study?

Microeconomics focuses on individuals in an economy while considering the overall economy.

What is opportunity cost?

The value of what was given up when choosing one activity over the next best alternative.

What is the formula for calculating opportunity cost?

Opportunity cost = Give up / Gain (the amount of good you are giving up divided by the amount of good you are gaining).

Explain what is meant by trade-offs.

Trade-offs refer to the choices individuals, firms, and governments face due to scarce resources, leading to the need to give up one option for another.

What is the Production Possibilities Curve (PPC)?

A model that examines production and opportunity cost by allocating scarce resources between two goods or services.

Describe increasing opportunity costs.

Increasing opportunity costs occur when more of one good must be given up to produce an additional unit of another good as resources are utilized less efficiently.

What is productive efficiency?

Productive efficiency is when the economy is producing the maximum output for a given level of technology and resources.

What is allocative efficiency?

Allocative efficiency is when the economy is producing the optimal mix of goods and services that maximize net benefit to society.

Define economic growth.

Economic growth is the ability to produce a larger total output over time through increases in resources or advancements in production technology.

What is absolute advantage?

Absolute advantage is the ability to produce goods or services more efficiently, using fewer inputs.

What is comparative advantage?

Comparative advantage is the ability to produce goods or services at a lower opportunity cost than others, allowing for trade benefits.

What does the law of demand state?

Holding all else equal, when the price of a good rises, the quantity demanded decreases.

What is the difference between a change in quantity demanded and a change in demand?

A change in quantity demanded occurs due to a price change (movement along the curve), while a change in demand refers to a shift of the entire demand curve.

What factors can cause a shift in demand?

Changes in income, number of buyers, substitutes, expectations of future prices, complements, tastes, and preferences can all shift demand curves.

What is the law of supply?

When the price level increases, the quantity supplied increases; when the price level decreases, the quantity supplied decreases.

What is market equilibrium?

Market equilibrium is the price at which buyers and sellers agree to exchange goods, where the quantity demanded equals the quantity supplied.

What occurs in market disequilibrium?

Market disequilibrium occurs when there is a surplus or shortage in the market, causing the price to adjust to restore equilibrium.

List the determinants of supply using the acronym ROTTEN.

R = Resources, O = Other good prices, T = Taxes, T = Technology, E = Expectations of suppliers, N = Number of competitors.

What is a market shortage?

A market shortage exists when the quantity demanded exceeds the quantity supplied at a certain price.

What happens to equilibrium when demand increases?

When demand increases, both equilibrium price and quantity increase.

What happens to equilibrium when supply increases?

When supply increases, equilibrium price decreases and quantity increases.