Circular Flow Showdown
Identify the role households play in the factor market and describe what they provide.
Households provide factors of production (labor) to the factor market.
Explain what a point inside the PPC tells us about resource use in an economy.
A point inside the PPC = inefficiency; not all resources are being used.
If producing 1 bushel of wheat means giving up 3 barrels of oil, explain the opportunity cost of wheat and why it matters.
Opportunity cost = 3 barrels of oil per wheat; this affects production decisions and trade.
Describe how trade can allow countries to consume beyond their PPC and give an example.
Trade allows countries to consume beyond their PPC by specializing in what they do best.
Explain the difference between absolute advantage and comparative advantage using your own example.
Absolute = more output overall; comparative = lower opportunity cost.
Explain how money moves through the circular flow when a consumer buys a product.
Money flows from households to product markets when buying goods, then to firms as revenue.
You move from Point A (5 books, 10 laptops) to Point B (10 books, 6 laptops). Describe the opportunity cost of this change.
Opportunity cost = 5 laptops for 5 books → 1 book = 1 laptop.
Describe a real-life decision you’ve made involving opportunity cost and trade-offs. Be specific.
Example may vary - e.g., choosing to study vs. socialize: opportunity cost = lost social time or better grade.
Country A: 40 shoes or 80 shirts. Country B: 30 shoes or 30 shirts. Who should specialize in what, and why?
Country A's OC (1 shoe = 2 shirts); B's (1 shoe = 1 shirt) → A should specialize in shoes, B in shirts.
Country A: 100 fish or 50 coconuts. Country B: 60 fish or 30 coconuts. Identify each country's absolute and comparative advantage.
A has absolute advantage in both.
A: 1 fish = 0.5 coconuts; B: 1 fish = 1 coconut
→ A should produce fish (lower OC), B coconuts.
Compare the function of the factor market to the product market using examples of goods and services.
Factor market is where resources are bought/sold; product market is where goods/services are bought/sold.
Illustrate a PPC where capital goods increase due to technology. Describe the shift and its economic meaning.
Outward bow along capital goods axis; shows growth in capital production capability.
Country A moves from producing 50 to 100 units of product X and reduces product Y from 200 to 100. Calculate the opportunity cost of one unit of X.
ΔX = 50; ΔY = -100 → Opportunity cost = 2 units of Y per unit of X.
Two countries agree to trade 1 shoe for 3 shirts. Use opportunity cost to explain who benefits from this deal.
OC for 1 shoe: A = 2 shirts, B = 1 shirt.
A gains from getting 3 shirts per shoe (better than 2). B loses - giving 3 shirts per shoe when domestic cost is only 1.
Given production data, how do you determine the opportunity cost of one good in terms of another and use it to assign comparative advantage?
Use data to calculate OC of one good in terms of another (for both countries). The lower OC has the comparative advantage.
A business pays workers, receives revenue, and buys inputs. Explain how these actions are represented in the circular flow.
Paying workers = flow to households via factor market; receiving revenue = from households via product market; buying inputs = payments into factor market.
Given a PPC with consumer goods and military goods, explain how different points reflect societal priorities.
Point near consumer goods axis = prioritizing short-term wants; near military = long-term security focus.
Two workers: Amy can make 10 cakes or 20 cookies; Bob can make 5 cakes or 15 cookies. Who should bake cakes and why?
Amy's OC of 1 cake = 2 cookies; Bob's = 3 cookies. Amy should bake cakes.
Country X produces 60 sugar or 20 cotton. Country Y produces 40 sugar or 40 cotton. Propose a mutually beneficial trade deal and explain the math.
A: 1 cotton = 3 sugar; B: 1 cotton = 1 sugar.
→ A specializes in sugar, B in cotton.
Why can a country benefit from trade even if it has an absolute advantage in producing everything?
Because comparative advantage, not absolute advantage, determines gains from trade.
Diagram a transaction (e.g., haircut, grocery purchase) and explain how each sector in the model is involved.
Example: haircut. Households pay money (product market) → firm receives revenue → firm pays wages (factor market) → household provides labor.
A country suffers a natural disaster affecting its food production. Predict and explain how the PPC for cattle and wheat will change.
PPC shifts inward along food axis; fewer resources available for food due to disaster.
A country can use its resources in one of two ways:
Option A: Produce 30 hospitals
Option B: Produce 90 schools
If the country increases hospital production from 10 to 20 hospitals, how many schools must it give up?
Final Answer:
OC of 1 hospital = 3 schools
OC of 1 school = 1/3 hospital
Producing 10 more hospitals costs 30 schools
Create a trade scenario using data for two goods, determine comparative advantage, and suggest fair terms of trade that benefit both sides.
Student-created. Example:
Country X: 100 rice or 50 fish
Country Y: 80 rice or 160 fish
X exports rice; Y exports fish
Fair trade: 1 fish = 0.5–1 rice
Must explain OC and mutual benefit.
Two firms can produce cars and computers. Create the output data (PPC) and decide who should specialize and justify your reasoning with opportunity cost.
Student must show production possibilities, calculate OC for both goods, and assign specialization.