Pre
Foundation of Econ
Foundation of Econ
What economic condition explains why we cannot produce all the goods and services people want? Example needed to provided
Scarcity
Explanation: It is the foundation of economics-all choices (what to produce, how to produce stem from scarcity. )
For example, a country can't build both 100 hospitals and 100 highways if it has only enough concrete for 100 projects.
What is a "positive statement" in economics?
A statement that can be tested and proven true/false (e.g., "The U.S. GDP grew by 2% in 2023").
Explanation: Positive statements are factual, not opinion-based. They contrast with normative statements (e.g., "The U.S. should grow GDP by 3%"), which are value judgments
Which factor of production includes "natural resources like oil and minerals"?
Land
Explanation: Land refers to all natural resources used in production, not just "dirt." Examples include oil (for fuel), minerals (for phones), and water (for farming). It is a fixed resource in the short run—you can’t create more oil overnight, which is why scarcity affects it.
How does "sustainability" relate to scarcity? Example needed to provide
Sustainability is about using resources today without depleting them for future generations—scarcity makes sustainability necessary.
For example, if we overuse oil (a scarce resource) today, there will be less for future people.
Different :DR goes beyond Pre’s basic "scarcity" definition to link it to real-world issues (sustainability). This is a common DR-level question that tests deeper understanding.
What is a "trade-off," and how is it related to opportunity cost?
A trade-off is choosing one option over another (e.g., "study or work"). Opportunity cost is the value of the option you give up—trade-offs create opportunity cost.
*Pre defines both terms separately; DR requires linking them.
What is the opportunity cost of choosing to spend 3 hours studying for an NEC quiz instead of working a part-time job that pays $12/hour?
$36
Explanation: Opportunity cost is the value of the next-best alternative. Here, the next best use of 3 hours is working, so opportunity cost = 3 hours × $12/hour = $36.
What is the difference between "needs" and "wants" in relation to scarcity?
Needs are essential for survival (e.g., food, shelter), while wants are desires (e.g., a luxury car). Both are limited by scarcity—we can’t satisfy all needs/wants with limited resources.
What is "diminishing marginal utility," and give an example.
The additional satisfaction from consuming one more unit of a good decreases as you consume more. Example: The first slice of pizza gives you 10 units of utility, the second slice gives 7, the third gives 3.
Calculate the opportunity cost of producing 1 more car if a country can produce 50 cars and 100 wheat, or 60 cars and 80 wheat.
2 wheat per car
Explanation: To produce 10 more cars (60-50), the country gives up 20 wheat (100-80). So opportunity cost of 1 car = 20 wheat / 10 cars = 2 wheat.
*DR requires calculating opportunity cost, while Pre only requires defining it
A country produces 2 goods: apples and oranges. If it uses all resources to make apples, it can produce 100; if it uses all resources to make oranges, it can produce 50. What is the opportunity cost of 1 apple?
0.5 oranges per apple
Explanation: Total opportunity cost of 100 apples = 50 oranges. So 1 apple = 50 oranges / 100 apples = 0.5 oranges.
*DR requires this basic calculation, while Pre only asks for the definition of opportunity cost.
Name the four factors of production, and give one example of each. Name the four factors of production, and give one example of each. (Q5)
1. Land: Farmland used to grow wheat.
2. Labor: A teacher’s effort in a classroom.
3. Capital: A factory machine used to make cars.
4. Entrepreneurship: A founder starting a new café.
Explanation: These are the resources needed to produce goods and services—without them, no economic activity can happen.
Why is the Production Possibility Curve (PPC) downward sloping? I need to hear key terms!
Because of trade-offs—producing more of one good requires producing less of the other (opportunity cost).
Explanation: For example, if an economy produces cars and wheat, making 10 more cars means using resources that could have made 20 wheat—so the PPC slopes down to show this trade-off.
How does a drought (which reduces farmland productivity) affect the PPC for a country that produces wheat and cars?
The PPC shifts inward (left) along the wheat axis—maximum wheat production decreases, but car production stays the same.Explanation: A drought damages "land" (a factor of production for wheat), so the country can’t produce as much wheat as before.
Why is the Production Possibility Curve (PPC) bowed outward (concave) instead of straight?
Because of increasing opportunity cost—resources are not equally good at producing both goods.
Example: A farmer who switches from wheat to cars first uses resources bad at wheat (rocky land) but good at cars—opportunity cost is low (1 car = 1 wheat). Later, they use resources good at wheat (fertile land) but bad at cars—opportunity cost rises (1 car = 3 wheat)
*Pre only requires identifying the PPC shape; DR requires explaining why it’s shaped that way
What is "economic growth" in terms of the PPC? 3 factors of causing needed to provide
Economic growth is an outward shift of the PPC, which means the economy can produce more of both goods (or more of one good without giving up the other).Causes: More resources (e.g., more workers), better technology (e.g., faster factories), or better education (more human capital).
*: Pre defines economic growth; DR requires linking it to the PPC (a micro tool).
What does a point inside the Production Possibility Curve (PPC) represent?(Q9)
Underutilization of resources (e.g.,unemployment)
Explanation: The PPC shows maximum output combinations of two goods. A point inside means the economy is not using all its resources
for example, if a country’s PPC allows 50 cars and 100 wheat, a point of 30 cars and 80 wheat means some workers/factories are unemployment.
What is a "normative statement," and give an example.
A statement based on opinion or value judgments (cannot be tested true/false).
Example: "The government should spend more on education."
Explanation: Normative statements involve "should/ought"—they reflect what someone thinks is right, not what is factually true. Economists often use positive statements to analyze, but normative statements guide policy decisions.
What is the difference between "explicit costs" and "implicit costs," and which one is included in opportunity cost?
Explicit costs: Money spent (e.g., $500 rent for a café).- Implicit costs: Opportunity cost of owner’s resources (e.g., $300 the owner could earn working elsewhere).- Implicit costs are part of opportunity cost.
What is "marginal product," and how does it relate to the Law of Diminishing Returns? Example needed to provide (Q73)
The Law of Diminishing Returns says marginal product will eventually decrease as more variable inputs are added to a fixed input (e.g., a factory).
Example: A bakery’s 1st worker makes 20 pastries, 2nd makes 15, 3rd makes 10—marginal product decreases (diminishing returns).
How does "human capital" (a subset of labor) affect the PPC? Example needed to provide
r: More human capital (e.g., better-educated workers) increases productivity, so the PPC shifts outward. Better-educated workers can make more cars/wheat with the same resources.
Example: A country that trains 100 workers to use new factory machines will see its PPC shift right—maximum car production rises from 50 to 70, even with the same number of workers.
*
Pre mentions "labor" as a factor of production; DR dives deeper into "human capital" (a critical component of labor) and its impact on output.
How does a technological improvement in wheat production shift the PPC?(Q9)
The PPC shifts outward (to the right), specifically along the wheat axis.
Explanation: Technological improvement increases the maximum wheat the economy can produce, without changing car production. For example, if the old PPC maxed out at 100 wheat, the new PPC might max out at 150 wheat—this is economic growth, driven by better technology.
How does an increase in the number of workers affect the PPC?
The PPC shifts outward (economic growth), because more labor (a factor of production) increases the maximum output of both goods.
Explanation: If a country gains 100 new workers, it can produce more cars and more wheat—so the entire PPC shifts right, not just one axis. This is different from a technology improvement (which often shifts one axis more).
Use the PPC to explain why "full employment" means a country is producing on the PPC, not inside it.
Full employment means all resources (labor, capital, land) are being used efficiently. A point on the PPC represents maximum output—no resources are idle, so full employment occurs here. A point inside the PPC means some resources are unused (e.g., unemployed workers), so it’s not full employment.
How does a technological improvement in both car and wheat production shift the PPC, and what does this mean for economic growth? Example needed to provide
The entire PPC shifts outward (right), because maximum production of both goods increases. This means the economy can produce more of everything—this is "balanced economic growth."Example: If the old PPC maxed out at 50 cars and 100 wheat, the new PPC might max out at 70 cars and 130 wheat. This is better than growth in only one good, as it satisfies more wants/needs
*DR tests your ability to analyze "dual shifts" in the PPC, while Pre only tests single-axis shifts.
A country is producing 40 cars and 80 wheat, but its PPC shows it can produce 50 cars and 80 wheat. What is the opportunity cost of moving from 40 to 50 cars? tips:draw PPC to see
Answer: 0 wheat
Explanation: The country is producing inside the PPC (40 cars < max 50 cars), so it has unused resources (e.g., idle factories). To produce 10 more cars, it can use the unused resources—no need to give up wheat. This shows that opportunity cost is only incurred when producing on the PPC (full employment).