The Basics
The social science concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic wants.
What is Economics
This results in a straight PPC and means that the resources needed to produce each good are easily adaptable or substitutable.
What is constant opportunity costs.
The producer that can produce the most output OR requires the least amount of inputs (resources) has...
An absolute advantage.
Marginal stands for...
Additional
Scarcity
Unlimited wants but limited resources
The 4 Factors of Production
Capital, Entrepreneurship, Land, and Labor
This is the concept that as you produce more of any good, the opportunity cost (forgone production of another good) will increase.
What is the Law of Increasing Opportunity Cost.
If Mike can make 2 surfboards per hour or 10 bikes per hour and Joe can produce 4 surfboards per hour and 12 bikes. What is Joe's opportunity cost for 1 surfboard?
3 bikes
The more you consume of anything, the additional satisfaction you get will decrease is called what?
Law of Diminishing Marginal Utility
Ceteris Paribus
All things being equal
The concept that society has unlimited wants but limited resources
What is Scarcity?
The Country of Econland produces both cars and computers. Econland is hit with a tsunami which destroys the countries major powerplants. Will this affect their production possibilities curve, and how?
Yes, Econland's PPC with shift inward (to the left) because of the decrease in the quantity of resources.
Panama can produce 100 bananas and 50 sugarcane.
Honduras can produce 160 bananas and 40 sugarcane.
What is Panama’s opportunity cost for producing one unit of bananas? What is Honduras’s opportunity cost for producing one unit of sugarcane?
Panama's per unit opportunity cost for one banana is 1/2 sugarcane.
Honduras's per unit opportunity cost for one sugarcane is 4 bananas.
What is the formula for the Utility Maximizing Rule?
MUx/Px =MUy/Py
Opportunity Cost
Next best option given up when making a choice.
The study of small economic units such as individuals, firms, and markets.
What is Microeconomics?
Oakbrookville produces both pizza and tacos. Suddenly, all of the students decide that pizza is inhumane and they will not longer eat it. Does this shift Oakbrookville's PPC? If so, how?
No, Oakbrookville's PPC will not shift. A change in demand does not shift the PPC; it causes a slide along the curve toward tacos and away from pizza production.
Panama can produce 100 bananas and 50 sugarcane.
Honduras can produce 160 bananas and 40 sugarcane.
What would be the mutually beneficial terms of trade? 1 sugarcane for...
Mutually acceptable terms if trade would be 1 sugarcane for any number between 2 and 4 bananas
If a 5th slice of pizza has a marginal utility/benefit of 3, and 6th slice of pizza has a marginal utility/benefit of 1, which slice of pizza will you eat if the marginal cost of each slice of pizza is 2?
Terms of Trade
Trading conditions that would benefit both countries
A centrally controlled economy where the gov't makes all decisions (ex: North Korea)
What is a Command Economy?
What are the 3 PPC Shifters?
1. Change in resource quantity or quality
2. Change in Technology
3. Change in Trade (allows more consumption)
Rome can produce 500 units of wine and 400 units of wheat.
Carthage can produce 200 units of wine and 300 units of wheat.
Which country has the comparative advantage in wheat? Which country should specialize in the production of wine?
Carthage has a comparative advantage in wheat.
Rome will specialize in wine because they have a comparative advantage (lower opportunity cost).
See Picture
3 Movies and 2 Go Karts
Marginal Utility
Additional satisfaction you get by consuming more