1. Economic Analysis
A.What is opportunity cost?(3 points)
Opportunity cost is the cost of not choosing the next best alternative.
B.Describe how economists use marginal analysis.(3 points)
Economists use marginal analysis when making a decision, because marginal analysis shows
the effect of an addition or subtraction from a current situation. So an economist can use it to
decide upon a decision.
C.Describe the production possibilities frontier and explain what it shows.(3 points)
The PPF shows all of the combos of production a business, person, or economy can do. It
shows the opportunity cost of producing something and can show if the business is operating at
full efficiency.
D.Define absolute advantage and comparative advantage.(6 points)
Absolute advantage is the ability to produce a good or service using fewer resources than other
producers. Comparative advantage is what other production a producer sacrifices if they decide
to produce a particular item.
2. Equilibrium
A.Draw a graph to show the equilibrium price.(3 points)
The circle is where the equilibrium price would be because it is where the
two lines intersect.
B.Describe what happens when demand decreases.(3 points)
If demand decreases then the price will decrease and the equilibrium price will also lower.
C.Explain what happens when a market is out of equilibrium(3 points)
When the market is out of equilibrium it will move toward equilibrium.
D.Define price floor. What is the effect of a price floor? (3 points)
A price floor is implemented to make the market be out of equilibrium and make it so the price of
something can not dip below a certain number. This causes an excess in supply.
4. Supply and Demand
A.State the law of supply.(3 points)
The law of supply states that if the price increases the quantity supplied will increase and if price
decreases then the quantity supplied will decrease.
B.What causes a change in the quantity of demand.(3 points)
A change in quantity demanded can be caused by a change in price.
C.Define the price elasticity of demand and explain what makes demand elastic or
inelastic.(6 points)
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The price elasticity of demand compares the size of a price change with the size of the resulting
change in quantity demand. Demand is elastic if a consumer is influenced by certain changes in
a product such as price. Demand is inelastic if consumers do not care what price a good is and
will still buy it.
D.Explain the difference between a change in supply and a change in the quantity
supplied. What might cause each of these kinds of changes. (6 points)
A change in supply is an increase or decrease in the quantity supplied of all products, shifts the
entire curve in a PPF, while a change in the quantity supplied is caused by a change in the price
and does not shift the entire curve. A change in supply can be caused by a change in the price
of a good or anything that affects supply(number of sellers, technology, taxes, expectations). A
change in quantity demanded can be caused by a change in the demand.
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