Economics Study Guide: Key Concepts & Definitions
Economics Study Guide
Basic Economic Concepts
1. Economic Growth and the PPF
When economic growth occurs, the Production Possibilities Frontier (PPF) shifts outward.
2. Impact of Resource Loss on the PPF
If a country loses resources, its PPF shifts inward.
3. Market Equilibrium
In a market, equilibrium occurs when the quantity supplied equals the quantity demanded. All other options are incorrect.
4. Scarcity and Choice
Which of the following is true because of scarcity? (Answer depends on the options provided)
5. Socialism and Economic Decisions
Under Socialism, economic decisions include deciding what to produce, how to produce it, and for whom to produce it.
6. Positive Economics vs. Normative Economics
Positive Economics describes the world as it is, while Normative Economics describes how the world should be.
7. Capital Increase and the PPF
Which of the following will cause an outward shift in the PPF? An increase in the capital stock.
8. Opportunity Cost
The opportunity cost of a choice is the value of the next best alternative that will be sacrificed.
9. Transaction Costs
Transaction costs are the costs associated with buying or selling a good or service.
10. Efficiency and the PPF
The point where the PPF is tangent to the indifference curve represents the point where the economy can attain and efficiently use its resources.
11. Significant Technological Advancements
Consider a situation where a significant technological advancement occurs. (Answer depends on the options provided)
12. Wealth of Nations and Individual Behavior
According to Adam Smith’s Wealth of Nations, individuals are motivated by self-interest and guided by an “invisible hand” to promote economic well-being.
13. The PPF and the Law of Increasing Cost
The PPF is typically bowed outward due to the law of increasing opportunity cost.
14-16. Refer to Questions 2-6
(Answers depend on the specific questions 2-6)
17. Production Capacity
In an economy, the maximum production capacity depends on the available resources and technology. (Example: 1500 units of output with 5 units of labor and 300 units of capital)
18. Minimum Wage and Unemployment
If the minimum wage is set above the equilibrium wage, some people who would otherwise be employed may become unemployed.
19. Comparing Standards of Living
Consider two countries. Country L’s standard of living depends on its productivity and resource allocation.
20. Opportunity Cost and Choices
The opportunity cost of a choice is the value of the highest-valued alternative forgone.
Supply and Demand
21. Supply Curve and Quantity Supplied
If a supply curve shifts to the right, suppliers are willing to supply more of a good at each price.
22. Complements and Price Changes
As the price of good J increases, the demand for its complement will decrease.
23. Normal Goods and Income Changes
If the demand for a good increases as income increases, it is considered a normal good.
24. Substitutes and Price Changes
Consider a city where the price of bus fares increases. The demand for substitute modes of transportation, such as bicycles or ride-sharing services, will likely increase.
25. Resource Availability and Supply
If the availability of resource H decreases, the supply curve will shift leftward.
26. Demand Shifts and Price Changes
In year 1, the demand for a good was higher than in year 2, resulting in a higher price.
27. Shortages and Price Ceilings
At a price below the equilibrium price, a shortage will occur.
31. Price Increase and Demand
Refer to question 3.3. A price increase will generally lead to a decrease in quantity demanded.
32. Price Decrease and Complements
Refer to question 3.3. A decrease in the price of a good will generally lead to an increase in the demand for its complement.
33. Price Floors and Surpluses
An effective price floor (a minimum price set above the equilibrium price) will result in a surplus.
34. Price Ceilings and Shortages
An effective price ceiling (a maximum price set below the equilibrium price) will result in a shortage.
35. Government Intervention and Healthcare
Assume that the government provides subsidies for healthcare services. This will likely increase the supply of healthcare services.
Macroeconomics
1-40. Macroeconomic Concepts
These questions cover various macroeconomic concepts such as economic growth, unemployment, inflation, aggregate demand, aggregate supply, and monetary policy. (Answers depend on the specific questions and context provided)