Production Possibilities
Demand
Supply
Market
Price Controls
100
This graph shows all possible combinations of goods that can be produced with the current level of resources
What is the PPC?
By definition, the PPC is all combinations of output that can be produced with a fixed level of resources.
100
What is a demand curve?
100
This graph shows a direct relationship between the price of a product and the quantity supplied of that product.
What is a supply curve?
100
This is where quantity supplied meets quantity demanded.
What is market equilibrium?
100
In the market for milk, the equilibrium price is $2/gallon. The government imposes a minimum price of $1/gallon.
What is a nonbinding price floor?
200
This combination of goods cannot be produced with the current level of resources.
What is any point outside the PPC?
Any exterior point is unattainable with the current level of resources. Someday, if more resources are acquired, the production may be reached, but not with the resources available right now.
200
What is an increase in demand?
200
In the market for oil, the price per barrel of oil is rising.
What is an increase in the quantity supplied of oil?
200
Market equlibrium price and quantity both increase when this happens.
What is an increase in demand?
200
In the market for apartments, the equilibrium price is $200/sq. ft. The government sets a legal maximum price at $100/sq. ft.
What is a binding price ceiling?
300
Unemployment is shown in this way.
What is an interior point?
Any point inside the PPC indicates that not all resources are being used.
300
What is a decrease in quantity demanded?
An increase in price leads to a decrease in quantity demanded. Any movement ALONG the demand curve means that there has been a change in quantity demanded, triggered by a change in the price of the product.
300
This is what happens when the cost of resources decrease.
What is an increase in supply?
300
This is what happens in the market for ethanol (made with corn) when corn prices rise.
What is a decrease in the supply of ethanol?
When a resource gets more expensive, the supply decreases.
300
In the market for labor, the minimum wage has been set at $15/hour. This is an example of a ...
What is a price floor?
400
This happens when a resource decreases that is only used by one of the products.
What is an uneven PPC shift?
If a resource is used in only one product, the model shows only one product being affected when the resource decreases. In this example, bad weather affect wheat production, but not computer production.
400
What is a decrease in demand?
A leftward shift in the entire demand curve represents a decrease in demand.
400
This is the result in the market for labor when employers are paying lower wages.
What is a decrease in the quantity supplied of labor?
Remember, in the labor market, the workers are the sellers of labor. These suppliers are less willing to provide their labor at lower wage rates.
400
In 2003, there was a gas pipeline break in Tucson, AZ. At the same time, the news caused a frenzy as customers ran to stock up on gas - causing these shifts in the market for gas.
What is a decrease in supply and and increase in demand for gasoline?
This graph isn't a perfectly accurate portrayal - in reality, the equilibrium price of gas went up, AND the equilibrium quantity of gas sold that week was 3 times the normal amount. What does this tell you about which side shifted more - the demand, or the supply?
400
In the market for human organs, the government has set the price to $0. There is gap at this price between the number willing to donate and the number wanting a transplant.
What is a shortage?
500
This is what we see in the model when unemployment increases.
What is a movement from one interior point to a point farther inside the PPC?
Remember, unemployment does not mean that the workers no longer exist, just that they aren't currently being used. Higher unemployment pushes us to combinations farther in the interior of the PPC.
500
What is an increase in quantity demanded?
A decrease in price leads to an increase in Qd. Any movement ALONG the demand curve means that there has been a change in quantity demanded, triggered by a change in the price of the product.
500
This is what happens in the labor market as the baby boom generation, the largest age demographic in the US, retires.
What is a decrease in the supply of labor?
500
This is what might have happened to cause the market shifts illustrated in this market.
What is .... there's no single correct answer to this - you just need to tell a story about a specific product market, and what might happen to cause the demand AND the supply to shift to the right!
500
The government has set a minimum price on milk to protect dairy farmers that is above the market equilibrium, causing a surplus.
What is a binding price floor?
