All Flashcards
What is scarcity?
Unlimited wants but limited resources.
Define opportunity cost.
The value of the next best alternative foregone.
What is a Production Possibilities Curve (PPC)?
A graph showing maximum combinations of goods/services an economy can produce.
What is comparative advantage?
Ability to produce a good at a lower opportunity cost than competitors.
Define Demand.
The quantity of a good consumers are willing to buy.
What is Supply?
The quantity of a good producers are willing to offer.
Define Equilibrium.
The point where quantity supplied equals quantity demanded.
What is economics?
The study of how we allocate limited resources to satisfy unlimited wants and needs.
What is laissez-faire?
A system where markets allocate resources perfectly without intervention.
What are markets?
Places (physical or virtual) where buyers and sellers interact to exchange goods or services.
What does a point on the PPC represent?
Efficient use of all resources in producing the two goods.
What does a point inside the PPC represent?
Inefficient use of resources or unemployment.
What does a point outside the PPC represent?
An unattainable level of production with current resources and technology.
What does a shift outward of the PPC represent?
Economic growth due to increased resources or improved technology.
What does a movement along the PPC represent?
A trade-off between the production of two goods; increasing production of one requires decreasing production of the other.
How does the shape of the PPC relate to opportunity cost?
A linear PPC indicates constant opportunity costs, while a bowed-out PPC indicates increasing opportunity costs.
Explain how technological advancements affect the PPC.
Technological advancements in one industry shift the PPC outward along the axis of that good, allowing more production.
How do changes in resource availability impact the PPC?
Increased resource availability shifts the PPC outward, enabling a higher potential output for both goods.
Describe the implications of operating at a point inside the PPC.
Operating inside the PPC signifies underutilization of resources, leading to lower overall production than possible.
How does trade affect a country's consumption possibilities relative to its PPC?
Trade allows a country to consume beyond its PPC by specializing in goods with a comparative advantage and exchanging them with other nations.
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.