Basic Economic Concepts
Production
Supply and Demand
Trade and Systems
100

List one basic assumption of Economics 

  • Society's wants are unlimited, but resources are limited. 
  • Due to scarcity, choices must be made. Every choice has a cost.
  • Everyone acts in their own self-interest. 
  • Everyone's goal is to make choices that maximize their satisfaction.

  • Everyone acts rationally by comparing the marginal costs and marginal benefits of every choice

100

List one example for land, labor, and capital as described as factors of production

Land: some natural resource, i.e. a river

Labor: some human effort, i.e. a construction worker

Capital: any manufactured good used to make another good, i.e. a factory.

100

What would happen to the market for grapes if a new study showed that eating grapes drastically decreases the risk of cancer and the wages increased for workers who grew grapes? (Increase, decrease, or indeterminate)

a. Demand 

b. Supply

a. increase

b. decrease

200

Joe does not make money from eating chocolate chocolate chip ice cream. He could have mowed the neighbor's lawn for $50 or babysat a cat for $10. What is the opportunity cost of Joe eating ice cream at this point in time?

$50, because we take the maximum utility among all alternatives to find the opportunity cost

200

An outward shift in a Production Possibilities Curve is most likely caused by

A-  An improvement in technology

B-  An increase in the number of workers

C-  A natural disaster

D-  A decrease in price

B-  An increase in the number of workers

200

Determine whether minimum wage for workers would best be resolved with a price floor or price ceiling

Price floor

300

Describe a difference between short and long run.

  • In the short run, one factor of production is fixed but not in the long run. 

  • In the long run, there are no fixed costs and only variable costs (Because no factors of production are fixed)

300

The Phillips Curve describes the inverse relationship between inflation and ____

unemployment

300

What would happen to the market for grapes if a new study showed that eating grapes drastically decreases the risk of cancer and the wages increased for workers who grew grapes? (Increase, decrease, or indeterminate)

a. price 

b. quantity

a. increase

b. indeterminate

400

Joe makes optimal decisions with regards to eating chocolate chocolate chip ice cream.

- Assume the marginal cost is fixed at 3 utils per cone. What will be the marginal benefit of the last ice cream cone he eats?

3 utils because MR = MC

400

Which of the labelled points on this graph are productively efficient?

Points Y, E, I are productively efficient because they are on the production possibilities curve.

400

Assume that a country’s market for grapes is currently at equilibrium.

Assume that the demand for grapes suddenly shifts right. What will happen to the price?

Increase

400

Japan can choose to produce stoves and cars, as shown in the production possibilities frontier below.

- Give the maximum number of cars that can currently be made if 4 stoves are produced, and explain why. Assume the production possibilities frontier is perfectly linear.

2

500

Describe the opinion of classical economists on supply and demand

  • supply creates its own demand

  • most important factor is supply

500

Which of the labelled points on this graph can be achieved without economic growth?

Points A, Y, E, I can be achieved without economic growth because they are below or on the production possibilities curve.

500

Assume that a country’s market for donuts is currently at equilibrium.

Describe how the market would return to equilibrium after supply takes a hit and shifts to the left

 Increasing price and decreasing quantity

500

Japan can choose to produce stoves and cars, as shown in the production possibilities frontier below.

- The marginal cost for Taiwan between stoves and cars is 3 cars per stove. Assuming Japan and Taiwan want to trade, what should Japan specialize in producing? Explain.

 Stoves, because the marginal cost is 0.5 cars per stove, so Japan has a comparative advantage in stoves and Taiwan has a comparative advantage in cars