Vocabulary
This term refers to the fact that the resources needed to make goods and services are limited in supply.
Scarcity
Janet can produce 20 hats or 2 blankets. What is the opportunity cost of producing 1 hat?
1/10 (or .1) blankets
Draw a PPC, and mark with an "X" an attainable, but undesirable level of production.
[The point will fall below the curve]
At a lower price, buyers have the incentive to buy other, similar products rather than products that are relatively more expensive. This is known as the ____.
Substitution Effect
Draw a supply and demand curve that shows the effect of increased taxes on the production of cars on the market for cars.
[The curve shows a leftward shift of the supply curve]
This term explains that to obtain more of one thing, society forgoes the option of getting the next best thing that could have been created with those resources.
Opportunity Cost
Country A can produce 16 tons of cherries or 5 tons of grapes. Country B can produce 12 tons of cherries or 6 tons of grapes. Who has the absolute advantage in cherries?
Country A
This law explains why the PPC is frequently bowed out from the center (i.e. not a straight line or curved inward).
Other things equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls. This is known as the ____.
Law of Demand
If there is a fall in income, what would be the effect on the equilibrium price and quantity of luxury cars?
Price - Decrease; Quantity - Decrease
This term describes the pleasure, happiness, or satisfaction obtained from consuming a good or service.
Utility
It takes Ms. Smith 3 hours to grade a set of papers and 4 hours to make a new exam. What is the opportunity cost of grading a set of papers?
3/4 (or .75) exams
Draw a PPC for cars and robots, and show the effect of a new technology that improves production of both goods.
[The graph should show a shift of the curve outward, to the right]
At a lower price, a buyer's purchasing power increases---they can buy more of the good. This is known as the ____.
Income Effect
If crayons (a substitute for colored pencils) are reduced in price, what effect will it have on equilibrium price and quantity in the crayon market?
Price - Increase; Quantity - Increase
This type of economics focuses on facts and cause-and-effect relationships. It avoids value judgments.
Positive Economics
Mr. Beard can produce 2 exams or 5 quizzes during a planning block. What is the opportunity cost of 1 quiz?
2/5 an exam (or .4)
Investment in which type of good would cause the future production possibilities curve to shift outward?
Capital Goods
Because of this, each buy of a product will derive less satisfaction from each successive unit of the product consumed.
Diminishing Marginal Utility
The CDC issues a warning about diseased carrots. At the same time, farmers develop new methods to increase crop yields. What is the effect on equilibrium price and quantity?
Price - decrease; Quantity - Indeterminate
This term refers to goods whose demand varies inversely with money income. When income is low, people buy more of these goods.
Inferior Goods
Country A can produce 6 tons of oranges or 5 tons of squash. Country B can produce 4 tons of oranges or 8 tons of squash. What terms of trade for squash would satisfy both countries?
Between 1/2 and 1 1/5 tons of oranges
What are the two factors that can shift a production possibilities curve?
Changes in technology and resources
What term describes the relationship between price and quantity supplied?
Direct (or positive)
The government increases its subsidies to producers of corn. At the same time a "top chef" has a television special focused on corn-based dishes. What is the effect on the equilibrium price and quantity of corn?
Price - Indeterminate; Quantity - Increases