Chapter 1 Definitions/Key Concepts
The study of how people manage scarcity.
What is Economics?
What may have been your opportunity cost for coming to this SI Session?
(ANSWER IS SUBJECTIVE)
-Sleeping, Eating, Working on Homework, etc.
This is produced in a foreign location but purchased for domestic consumption.
Its counterpart is produced domestically but sold to a foreign location.
What are we?
What is Imports and Exports?
If Anne can produce either 25 diamonds or 75 rubies, then what is her opportunity cost to make one diamond?
What about making one ruby?
OC(Diamond) = 75/25 = 3 rubies
OC(Ruby) = 25/75 = 1/3 diamonds
It comes in first place in a standard rainbow, and it also happens to be my FAVORITE color.
What is Red?
The three core choices that confront every nation.
HOW to produce?
FOR WHOM to produce?
Here is Dan's PPS for Apples and Oranges:
Oranges Apples
A 20 0
B 15 2
C 10 3.5
D 5 4.8
E 0 5.0
What is the opportunity cost of the first 5 oranges produced?
0.2 of an Apple
Whenever a nation is focused on producing the good they have a comparative advantage in, it is said they are doing this.
What is Specialization?
When two countries specialize and trade, they gain the ability to increase their what?
Consumption Possibilities
The menu for tonight is steak, mashed potatoes, green beans, shrimp, and so much more! But Haley is just fine with the all-you-can-eat dinner rolls. (What is Haley's favorite restaurant?)
What is Texas Roadhouse?
Never the first best choice, nor the third. This concept likes to be second.
What is Opportunity Cost?
Here is Dan's PPF for Apples and Oranges:
Oranges Apples
A 20 0
B 15 2
C 10 3.5
D 5 4.8
E 0 5.0
What is the opportunity cost of producing the first few apples (on average)?
OC(Apples) = 15/2 = 7.5 oranges
In the event that all trade is prohibited, the country must rely on itself to produce all goods. In other words, the country's consumption possibilities equal its production possibilities. I am said to be this type of economy.
What is a Closed Economy
Say Ian can produce 1 barrel of wine for 20 bushels of wheat.
Frank can produce 1 barrel of wine for 25 bushels of wheat.
Would these terms of trade be accepted? If not, suggest a trade agreement that would work:
1 barrel of wine for 15 bushels of wheat
No, the ToT would not work. Any viable trade agreements must be 1 barrel of wine for 20 < x < 25 bushels of wheat.
They say to never let a black one cross your path, as it may be bad luck. That is true for Haley, as she is allergic to them.
This is described as having unlimited wants, but not enough resources to fulfill them.
What is Scarcity?
Here is Dan's PPS for Apples and Oranges:
Oranges Apples
A 20 0
B 15 2
C 10 3.5
D 5 4.8
E 0 5.0
Draw a PPF using the information above. According to the shape of the curve, we can conclude this about the opportunity cost.
*show the graph on the board*
It has an increasing opportunity cost!
If the country can produce a good at a lower opportunity cost, it is said they have this for that good.
What is Comparative Advantage?
In terms of a graph, after specialization and trade (assuming they followed the terms of trade rules), where should the new point of Consumption Possibilities be a party's PPF?
Draw a graph to verify your answer.
He might just be darker than night, but he's always been my beacon of hope. (Who is my favorite Superhero?
Who is The Batman?
DAILY DOUBLE
These four concepts serve as the inputs for goods and services. Also known as what?
What are Land, Labor, Capital, and Entrepreneurship?
What are the Factors of Production?
What is it?
Who came up with it?
What's another name for it?
The Market Mechanism is the idea that you should leave the markets alone. Keep the government from intervening, and allow people to act in their own selfishness, and everything should be okay.
Adam Smith
The Invisible Hand.
In order for the terms of trade to benefit both parties, it is said that the traded value must do this.
What is "falling in between the two parties' opportunity costs"?
Say that Georgia and Florida decide that they want to come up with a trade agreement for two goods: Peaches and Alligators
Georgia can produce 40 peaches and 15 gators, while Florida can produce 20 peaches and 25 gators.
Who has the comparative advantage in what?
Would they accept these terms of trade?:
1 Alligator for every 2 peaches?
For Georgia:
OC(P) = 15/40 = 0.375 Alligators
OC(A) = 40/15 = 2.67 Peaches
COMP in Peaches
For Florida:
OC(P) = 25/20 = 1.25 Alligators
OC(A) = 20/25 = 0.8 Peaches
COMP in Alligators
Yes! They would accept the terms of trade because:
P = 0.8 < 2 < 2.67
A = 0.375 < 1 < 1.25
What is Indiana Jones and The Raider's of The Lost Ark?