PPC & SCARCITY
What is the fundamental economic problem caused by unlimited wants and limited resources?
Scarcity
What type of advantage means being able to produce a good at a lower opportunity cost?
Comparative advantage
According to the law of demand, what happens to quantity demanded when price increases?
Quantity demanded decreases.
According to the law of supply, what happens to quantity supplied when price increases?
Quantity supplied increases.
What is the name of the point where quantity demanded equals quantity supplied?
Equilibrium
A point inside the PPC represents what two possible problems?
Unemployment or inefficient use of resources
What type of advantage means being able to produce more of a good using the same amount of resources?
Absolute advantage
The price of Nike sneakers decreases. Does this cause a shift in demand or a movement along the demand curve?
Movement along the demand curve; quantity demanded increases.
The current market price of pizza decreases. Does this cause a shift in supply or a movement along the supply curve?
Movement along the supply curve; quantity supplied decreases.
If quantity demanded is 120 and quantity supplied is 40, what exists in the market and by how much?
An 80-unit shortage
A country is currently producing at a point on its PPC. What does this tell us about its use of resources?
Resources are being used efficiently.
Country A can produce 20 pizzas OR 40 burgers.
What is Country A's opportunity cost of producing 1 pizza?
2 burgers
Pepsi and Coke are substitutes. If the price of Pepsi increases, what happens to the demand for Coke?
Demand for Coke increases / shifts right.
The price of cheese used to make pizza increases. What happens to the supply of pizza?
Supply decreases / shifts left.
The current market price is above equilibrium. What exists in the market, and what will happen to price?
A surplus exists, and price will decrease
An economy moves from producing 10 computers and 50 cars to 20 computers and 35 cars. What is the opportunity cost of producing the additional 10 computers?
15 cars
Country X can produce 10 cars OR 60 motorcycles.
Country Y can produce 20 cars OR 80 motorcycles.
Which country has the comparative advantage in producing cars?
Country Y
Country X: 1 car = 6 motorcycles
Country Y: 1 car = 4 motorcycles
Consumers' incomes increase, and restaurant meals are a normal good. What happens to the equilibrium price and quantity of restaurant meals?
Price increases and quantity increases.
New technology makes laptops cheaper to manufacture. What happens to supply, equilibrium price, and equilibrium quantity?
Supply increases, price decreases, and quantity increases.
Demand increases AND supply increases. What happens to equilibrium price and quantity?
Price → Indeterminate
Quantity → Increases
A country develops new technology that allows workers to produce more of both goods. What happens to the PPC, and why?
The PPC shifts outward because the economy's productive capacity has increased.
Brazil requires 4 hours for coffee and 8 hours for wheat.
Peru requires 6 hours for coffee and 9 hours for wheat.
Which country has the comparative advantage in coffee?
Brazil
Brazil: 1 coffee = 1/2 wheat
Peru: 1 coffee = 2/3 wheat
Brazil has the lower opportunity cost.
Consumers expect laptop prices to be much higher next month. What happens in the current laptop market?
Current demand for laptops increases, shifting the demand curve right. Equilibrium price and quantity increase.
Wages paid to workers who produce televisions decrease. Identify all four effects: production costs, supply, equilibrium price, and equilibrium quantity.
Production costs → Decrease
Supply → Increase
Equilibrium price → Decrease
Equilibrium quantity → Increase
Demand increases at the same time supply decreases. What happens to equilibrium price and equilibrium quantity?
Price → Increases
Quantity → Indeterminate