Download Basic Economic Concepts Review of Key Concepts, Skills and Graphs

Basic Economic Concepts
Review of Key Concepts, Skills and Graphs
1. Economics is the study of the efficient use of scarce resources in the production of goods and services to achieve the
maximum satisfaction of economic wants.
2. Goods and services are produced from resources. These resources, land labor, capital , and entrepreneurship – are
limited.
3. The economic perspective includes three elements: scarcity and choice, rational behavior, and marginalism. It sees
individuals and institutions making rational decisions based on comparisons of marginal costs and marginal benefits.
4. Opportunity cost is the amount of other products that must be forgone or sacrificed to produce a unit of a product.
5. Macroeconomics looks at the economy as a whole or its major aggregates; microeconomics examines specific
economic units or institutions.
6. A production possibilities curve can be used to illustrate scarcity, choice,
and opportunity cost graphically.
7. The production possibilities curve represents the point at which an economy
is most efficiently producing.
8. Points A, B, and C represent efficient use of resources.
9. Point x represents an inefficient use of resources.
10. Point Y represents a point that cannot be attained at the present level of
resources.
11. The slope of the production possibilities curve shows the opportunity cost of
producing another unit of one good in terms of the amount of the other
good that must be given up
12. The demand curve represents the willingness of buyers to purchase a
particular product at various pieces.
13. The law of demand implies the consumers will buy more of a product
at a low price than at a high price.
14. Demand is determined by tastes, the number of buyers, income of
consumers, the prices of related goods, and price expectations.
15. When one of these determinants changes the demand curve will shift.
16. A shift to the right is an increase in demand.
17. A shift to the left is a decrease in demand.
18. The supply curve represents the amounts of a product that
producers are willing to offer at each possible price.
19. The law of supply states that producers will offer more of a product
at a high price than at a low price.
20. Supply is determined by resources prices, production techniques,
taxes or subsidies, the price of other goods, price expectations
and the number of sellers in the market.
21. When one of these determinants changes the supply curve will
shift. A shift to the right is an increase in supply. A shift to the
left is a decrease in supply.
22. The equilibrium price and quantity are established at the intersection
of the supply and demand curves.
23. The market adjusts the price to the point at which the quantities
demanded and supplied are equal.