Scarcity and Choice
The concept of unlimited wants and limited resources
Scarcity
What is opportunity cost?
Value of what you give up when you make a certain choice
Which country would have a comparative advantage?
A country with a lower opportunity cost in production.
Law of Demand
Higher prices decrease quantity demanded
What happens when the price is above the equilibrium price?
Surplus
Why do people have to make choices?
Due to scarcity and having unlimited wants but limited resources
What does an outward shift of the PPC show?
Economic growth
When a country focuses on making a good that they have a comparative advantage in
Specialization
Law of Supply
Higher prices increases quantity supplied
When will one variable always be unknown?
When there is a double shift of the curves.
The study of scarcity and choice
Economics
What does the PPC show?
The trade off between the production of 2 goods
How is opportunity cost calculated?
By finding the slope of the PPC
How does the demand curve shift if consumers expect prices to increase?
Demand curve shifts right
What happens when the price is below the equilibrium price?
Shortage
Statements about how economics already works
Why is the PPC concave down
Rate at which one good can be exchanged for another
Terms of Trade
How does the supply curve shift if the price of a substitute increases?
Supply curve shifts left
What is the eventual effect of a negative demand shock?
lower price and quantity demanded
The four factors of production.
Which points are the most feasible and efficient on the PPC?
The points on the PPC frontier.
When are terms of trade favorable?
When they fall in between the producer’s opportunity cost and the buyer’s opportunity cost
What is the effect on a demand curve if the price level increases?
Quantity demanded decreases; shift along the curve
What is the eventual effect of a positive supply shock?
Lower price but higher quantity