Unit 1 Basic Economic Concepts 8-12% 4-7 MCQs – all 3 SAQs

Chapter Review Chapters 1 and 2

Definition and Perspective Unlimited Wants and Limited Resources = Scarcity Resources = Land, Labor, Capital, Entrepreneurial Ability = Factors of Production Efficient Use of Scarce Resources for Maximum Satisfaction Opportunity Costs and Marginal Analysis Rational Self-Interest or Utility Ceteris Paribus = Other-Things-Equal Assumption

Economic Policy State the Goal Determine the Policy Options Implement and Evaluate the policy that was selected

Economic Goals Economic Growth Full Employment Economic Efficiency Price-level Stability Economic Freedom Equitable Distribution of Income Economic Stability Balance of Trade

Economic Principles Positive and Normative Economics Pitfalls Bias Loaded Terminology and Definition of Terms Fallacy of Composition Post Hoc Fallacy Correlation vs. Causation

Production Possibilities 1 Economic Efficiency = Full Employment + Full Production Full Employment = use of all available resources Full Production = Productive and Allocative Efficiency Production Possibilities Table Full Employment and Productive Efficiency Fixed Resources and Technology (cp) Two Goods

Production Possibilities 2 Production Possibilities Curve Points on the Curve Points inside the Curve Points outside the Curve Law of Increasing Opportunity Costs Marginal Benefit = Marginal Cost

Unemployment and Growth Unemployment and Inefficiency Economic Growth How do you shift the PPC outward? Increased resources, Improvements in Resources, Tech Advances

Economic Systems Market System – Market Economy Capitalism, laisse-faire Command System – Command Economy Communism or Socialism

Chapter Review Chapter 3

Demand 1 Definition Curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time. Law of Demand CP, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls. Inverse relationships between quantity and price

Demand 2 Diminishing Marginal Utility Income Effect The lower the price, the greater the purchasing power of a buyer’s income and vice versa Substitution Effect At a lower price buyers have a greater incentive to substitute for a relatively less expensive item

Demand 3 Demand Curve

Determinants of Demand 1. Consumer Taste/Preference 2. Number of Consumers in the Market 3. Consumer Income = Normal/Superior vs. Inferior Goods 4. Price of Related Goods = Substitutes and Complements 5. Consumer Expectations

ΔD vs. ΔQ D ΔD = Δ in Determinants of Demand = Shift in the Curve ΔQ D = Δ in Price = Movement along the curve Consumer

Supply 1 Definition Curve showing the amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices during a specific period. Law of Supply CP, as price rises, the quantity supplied rises; as price falls, the quantity supplied falls. Direct relationships between quantity and price

Supply 2 Supply Curve

Determinants of Supply 1. Resource Prices 2. Technology 3. Taxes and Subsidies 4. Prices of Other Goods 5. Price Expectations 6. Number of Sellers in the Market

ΔS vs. ΔQ S ΔS = Δ in Determinants of Supply = Shift in the Curve ΔQ S = Δ in Price = Movement along the curve Producer

Market Equilibrium 1 Equilibrium = balance between S and D = the intersection of the curves Markets will naturally move toward equilibrium Surpluses = Points above the equilibrium price/quantity Shortages = Points below the equilibrium price/quantity

Market Equilibrium 2

Market Equilibrium 3 Rationing Function of Prices Effects on the Economy Changes in Demand Changes in Supply

Government and Prices Price Ceilings and Shortages Rationing Problems Black Markets Rent Control Price Floors and Surpluses Distortion of Resource Allocation

Curriculum Outline I-A – Scarcity, choice, and opportunity costs I-B – Production possibilities curve I-D – Demand, Supply, and Market Equilibrium