Download Unit 1 Exam Review Definitions: Economic problem Scarcity Positive

Unit 1 Exam Review
Definitions:
1. Economic problem
2. Scarcity
3. Positive and normative economics
4. Opportunity cost
5. Production possibilities curve
6. Equilibrium
7. Comparative advantage
Graphs/Charts/Application:
8. Interpret production possibilities curves – What do points on, inside, and outside the curve mean? How can we
move from one point to another? What will cause the curve to shift?
9. Identify opportunity cost on a PPC graph
10. Interpret scenarios that cause supply and demand to shift – What factors will cause shifts (list provided in notes)?
How does the supply and demand respond?
11. Recognize the impacts of supply and demand shifts on complements and substitutes
12. Interpret impact of shifting supply and demand (single and dual shifts) – How will price and quantity respond to a
shift in supply? In demand? How about a shift in both?
13. Identify impacts of government price controls and the removal of these
14. Identify comparative and absolute advantage for two countries
15. Interpret charts depicting opportunity cost and absolute/comparative advantage
Practice Questions to Help You Prepare for Unit 1 Exam
1. What is the difference between positive economics and normative economics?
2. What are the five principal factors that shift the demand curve?
3. What are the five principal factors that shift the supply curve?
4. Ceteris paribus, a decrease in the price of product x would have what effect on the demand for its complement,
product y? What effect would it have on the product’s substitute, product z?
5. What effect does an increase in income have on the demand for most products? What effect does this increase have
on the demand for inferior products?
6. Product x is linked to a public health scare. What will be the effect of this on supply, demand, equilibrium quantity
and price?
7. The technology needed to produce product y has become significantly more expensive. What will be the effect of
this on supply, demand, equilibrium quantity and price?
8. To be effective, a price ceiling must be set
the equilibrium price.
9. To be effective, a price floor must be set
the equilibrium price.
10. A surplus/shortage (circle one) results from price ceilings because…
11. A surplus/shortage (circle one) results from price floors because…
Complete the chart below.
Scenario Supply
GRAPH EACH SCENARIO HERE!
Demand
14
Increases
Constant
15
Decreases
Constant
16
Constant
Increases
17
Constant
Decreases
18
Increases
Increases
19
Increases
Decreases
20
Decreases
Increases
21
Decreases
Decreases
Effect on PE
Effect on QE
The table below shows the number of hours needed to produce one bushel of wheat and one unit of textiles in each of
two countries. Questions 22-25 refer to the chart below.
Country A
Country B
Weekly Output per worker
One bushel of wheat
One unit of textiles
5
7
15
10
22. What is the opportunity cost of producing a bushel of wheat for each country?
23. What is the opportunity cost of producing a unit of textiles for each country?
24. Which country has the absolute advantage in wheat? Which country has the absolute advantage in textiles?
25. Which country has the comparative advantage in wheat? Which country has the comparative advantage in textiles?
Questions 26-29 refer to the chart below.
Fireworks
0
3
6
9
12
15
Country C
Mousetraps
30
24
18
12
6
0
Fireworks
0
2
4
6
8
10
Country D
Mousetraps
40
32
24
16
8
0
26. For Country C, what is the opportunity cost of producing 3 fireworks? What is the opportunity cost per unit of
fireworks?
27. For Country C, what is the opportunity cost of producing 6 mousetraps? What is the opportunity cost per unit of
mousetraps?
28. For Country D, what is the opportunity cost of producing 2 fireworks? What is the opportunity cost per unit of
fireworks?
29. For Country D, what is the opportunity cost of producing 8 mousetraps? What is the opportunity cost per unit of
mousetraps?
CAPITAL GOODS
Questions 30-37 refer to the graph below.
CONSUMER GOODS
30. Does this graph exhibit increasing opportunity costs? How do you know?
31. Which points on the graph represent efficiency in production?
32. For this economy, an increase in the quantity of capital goods produced without a significant decrease in the
quantity of consumer goods produced is best represented by movement from point to point
.
33. An increase in unemployment could be represented by a movement from point
to point
.
34. What scenarios might allow this economy to move from point C to point E?
35. Ceteris paribus, producing at which point today will result in the largest outward shift of the PPC in the future?
36. Which shifts might result from this country going to war?
37. What is the most likely result of a recession in this economy?
Questions 38-45 refer to the graphs below.
38. Which country has the absolute advantage in books?
39. Which country has the absolute advantage in coats?
40. For Utopia, the opportunity cost of producing books is
producing coats in Utopia is
41. For Transylvania, the opportunity cost of producing books is
of producing coats in Transylvania is
. The opportunity cost of
.
. The opportunity cost
.
42. Which country has the comparative advantage in books?
43. Which country has the comparative advantage in coats?
44. If the two countries specialize and trade, what should Utopia export? What should Transylvania export?
45. What is the highest price each country would pay for the product it imports?