All Flashcards
Analyze a PPC showing trade-offs between consumer and capital goods.
Movement along the PPC shows the opportunity cost of producing more of one type of good versus the other.
Analyze a supply and demand graph showing a surplus.
Surplus indicates that the price is above equilibrium, leading to excess supply.
Analyze a supply and demand graph showing a shortage.
Shortage indicates that the price is below equilibrium, leading to excess demand.
What does a point inside the PPC indicate?
Inefficient use of resources or unemployment.
What does a point outside the PPC indicate?
Currently unattainable with existing resources and technology.
How does a shift in the demand curve affect equilibrium price and quantity?
A rightward shift increases both equilibrium price and quantity; a leftward shift decreases both.
How does a shift in the supply curve affect equilibrium price and quantity?
A rightward shift decreases equilibrium price and increases quantity; a leftward shift increases price and decreases quantity.
What does a bowed-out PPC indicate?
Increasing opportunity costs as production shifts from one good to another.
What does a straight-line PPC indicate?
Constant opportunity costs as production shifts from one good to another.
How does technological advancement affect the PPC?
It shifts the PPC outward, allowing for greater production of both goods.
What is scarcity?
Unlimited wants exceeding limited resources, forcing choices.
What is opportunity cost?
The value of the next best alternative forgone when making a choice.
Define factors of production.
Resources used to produce goods and services: land, labor, capital, entrepreneurship.
What is a free-market economy?
An economic system where decisions are made by individuals and businesses based on supply and demand.
What is a command economy?
An economic system where the government controls the economy and makes decisions.
What is a mixed economy?
An economic system combining free-market and command elements.
What is productive efficiency?
Producing goods at the lowest possible cost (on the PPC).
What is allocative efficiency?
Producing the mix of goods society desires most (optimal point on the PPC).
Define absolute advantage.
Being able to produce more of a good with the same resources.
Define comparative advantage.
Being able to produce a good at a lower opportunity cost.
What is marginal cost (MC)?
The cost of producing one more unit of a good or service.
What is marginal benefit (MB)?
The benefit of consuming one more unit of a good or service.
Define utility.
The satisfaction or happiness derived from consuming goods and services.
Define marginal utility.
The additional satisfaction gained from consuming one more unit of a good or service.
What are the differences between absolute and comparative advantage?
Absolute advantage is about producing more with the same resources; comparative advantage is about producing at a lower opportunity cost.
What are the differences between explicit and implicit costs?
Explicit costs involve direct payments; implicit costs are opportunity costs of using resources.
What are the differences between productive and allocative efficiency?
Productive efficiency is producing at the lowest cost; allocative efficiency is producing the optimal mix of goods.
What are the differences between a free market and a command economy?
Free market relies on individual decisions; command economy relies on government control.
What is the difference between physical and human capital?
Physical capital refers to machinery and tools; human capital refers to skills and knowledge.
Differentiate between scarcity and shortage.
Scarcity is a fundamental condition of limited resources, while a shortage is a temporary lack of a good at a specific price.
What is the difference between microeconomics and macroeconomics?
Microeconomics studies individual decisions, while macroeconomics studies the economy as a whole.
What is the difference between normative and positive economics?
Positive economics is based on facts and cause-and-effect relationships, while normative economics incorporates subjective value judgments.
Differentiate between economic efficiency and equity.
Economic efficiency focuses on maximizing output from resources, while equity concerns the fair distribution of resources and outcomes.
What is the difference between a good and a service?
A good is a tangible item that satisfies a want, while a service is an intangible act that satisfies a want.