Economics Unit 1:
Basic Economic Concepts Study Guide
1. Complete each of the following tasks with short paragraphs:
A. Explain the relationship between scarcity, choices, and trade-offs (____/4)
B. Differentiate between the following terms: price, costs, and opportunity cost (____/4)
C. Fully explain the difference between the following (USE EXAMPLES):
i.
Normative and Positive Economics (____/3)
2. Draw Production Possibilities Graph for the Ford Motor Co. using the following information: (____/5)
A
B
C
D
E
F
G
Cars
0
10
18
25
30
33
35
Trucks
45
42
39
33
25
15
0
A. What are the consequences of Ford producing at combination A? Combination G? In reality, are
either combinations desirable? Why? Why not? (____/5)
B. Plot the combination with 20 cars and 40 trucks and label it “X.” Plot the combination with 25
cars and 20 trucks and label it “Y.” Explain what is happening at these points? (____/5)
C. Explain, with examples, how your graph shows 5 concepts: opportunity costs, efficiency,
unemployment, the law of increasing opportunity costs, and economic growth. (____/10)
D. Explain the difference between consumer goods and capital goods (____/3)
3. Use the PPF-A and PPF-B on the back of this paper to answer A-D:
A. On PPF-A, what is the opportunity cost from point a to b in terms of guns? What about moving from
b to c? What generalizations can you make? (____/5)
B. On PPF-B, what is the opportunity cost from point a to b in terms of guns? What is the PER UNIT
OPPORTUNITY COST from moving from c to e? (____/5)
C. Which PPF shows increasing opportunity costs? Use numerical examples to explain why? (____/5)
D. Fully explain three specific situations that would shift PPF-B outward. Draw and label these changes
on three separate graphs. (____/5)
E. Fully explain the difference between the following (USE EXAMPLES)
i. Free-Market and Centrally Planned Economies (_____/3)
ii. Resource Markets and Product Markets (____/3)
4. EXPLAIN an experience or example that shows the “real world” application of each of the following.
Define the terms in your own words and use examples that clearly demonstrate your understanding
of each concept.
A. The Law of Demand and the Law of Supply ( ____/5)
B. The Law of Diminishing Marginal Utility ( ____/5)
C. Normal Goods and Inferior Goods ( ____/5)
5. Supply and Demand Worksheets
a. Complete the study guide entitled “Demand and Supply Study Guide” ( ____/10)
b. Complete the worksheet entitled “Demand and Supply Practice” ( ____/10)
Demand and Supply Study Guide
Demand
Definition of Demand:
Supply
Definition of Supply:
The Law of Demand:
The Law of Supply:
Why is demand downward sloping?
Why is supply upward sloping?
Demand Curve
Supply Curve
What changes quantity demanded?
What changes quantity supplied?
What changes in demand? (5 Shifters of Demand) What changes supply? (6 Shifters of Supply)
Explain the difference between a “change in demand” and change in “quantity demand”
Supply and Demand Together
Equilibrium- Qd____Qs
Shortage- Qd____Qs
Shortage- Qd____Qs
Economic Analysis-What happens to P and Q?
Cereal Market
1.
2.
o
o
o
3.
o
Draw Equilibrium
Analyze Change
Supply or Demand
ShifterIncrease or Decrease
New Equilibrium
What Happens to:
Price_____
Quantity______
Change: Price of milk increases significantly
Elasticity of Demand





Elasticity of Demand Coefficients
Perfectly Inelastic
Relatively Inelastic
Unit Elastic
Relatively Elastic
Perfectly Elastic
Inelastic Demand
Elastic Demand
Total Revenue Test
Inelastic Demand
When price increases, TR ____
When price decreases, TR ____
Elastic Demand
When price increases, TR ____
When price decreases, TR ____
Demand and Supply Practice
Use Economic Analysis to determine what happens to the price and quantity of computer games in
each scenario.
Change
Graph
Economic Analysis
#
1
It becomes known that an
electronics store is going
to have a sale on their
computer games 3
months from now.
1. Draw and Label Equilibrium:
2. The Change:
Supply or Demand
Increase or Decrease
Shifter
3. After: Price _____ Quantity_____
The workers who
produce the computer
games go on strike for
over two months
1. Draw and Label Equilibrium:
2. The Change:
Supply or Demand
Increase or Decrease
Shifter
3. After: Price _____ Quantity_____
When the average price
of movie tickets rises, it
has an effect on the
purchase of computer
games. (Analyze
computer games.)
1. Draw and Label Equilibrium:
2. The Change:
Supply or Demand
Increase or Decrease
Shifter
3. After: Price _____ Quantity_____
2
3
4.
The workers who
produce the computer
games negotiate a $20
per hour wage increase.
6.
A reputable private
research institute
announces that children
who play computer
games also improve their
grades in school.
7.
Because of the use of
mass production
techniques, workers in
the computer game
industry become more
productive
1. Draw and Label Equilibrium:
2. The Change:
Supply or Demand
Increase or Decrease
Shifter
3. After: Price _____ Quantity_____
1. Draw and Label Equilibrium:
2. The Change:
Supply or Demand
Increase or Decrease
Shifter
3. After: Price _____ Quantity_____
1. Draw and Label Equilibrium:
2. The Change:
Supply or Demand
Increase or Decrease
Shifter
3. After: Price _____ Quantity_____
8.
The price of home
computers decreases
significantly. (Analyze
computer games.)
9.
The Federal government
imposes a $5 per game
tax on the manufacturers
of the games.
1. Draw and Label Equilibrium:
2. The Change:
Supply or Demand
Increase or Decrease
Shifter
3. After: Price _____ Quantity_____
The manufacturer of the
computer games raises
the price on the games.
1. Draw and Label Equilibrium:
2. The Change:
Supply or Demand
Increase or Decrease
Shifter
3. After: Price _____ Quantity_____
In order to promote
American production,
Congress provides a
subsidy to game
producers. (Analyze
only American firms)
1. Draw and Label Equilibrium:
2. The Change:
Supply or Demand
Increase or Decrease
Shifter
3. After: Price _____ Quantity_____
A large firm enters the
game business with a
new line of games.
(Analyze the whole game
industry)
1. Draw and Label Equilibrium:
2. The Change:
Supply or Demand
Increase or Decrease
Shifter
3. After: Price _____ Quantity_____
In order make computer
games available to lowincome families,
Congress sets a price
ceiling for the games.
1. Draw and Label Equilibrium:
2. The Change:
Supply or Demand
Increase or Decrease
Shifter
3. After: Price _____ Quantity_____
10
11
1. Draw and Label Equilibrium:
2. The Change:
Supply or Demand
Increase or Decrease
Shifter
3. After: Price _____ Quantity_____
12
13