Microeconomics Unit 1 Study Guide
Basic Economic Concepts
Topic 1.1- Scarcity Topic 1.2- Resource Allocation
1. Define scarcity. Individuals, businesses, and 1. What are the three economic questions every society
governments have unlimited wants but limited must answer? 1. What goods and services to produce? 2.
resources. How to produce them? 3. Who consumes them?
2. Identify the four factors of production. The resources 2. Identify two characteristics of a centrally planned
required to produce goods and services. Land, labor, economy? An economic system where the government
capital, entrepreneurship owns the resources and answers the 3 economic
3. Define capital goods. Goods made for indirect questions. Very little private property and few (if any)
consumption. Goods that make consumer goods private businesses.
(example: restaurant oven). 3. Identify two characteristics of a market economy? An
4. Define human capital. Skills, knowledge, traits, and economic system where individuals own the resources and
experience that make workers more productive answer the 3 economic questions. Little government
(example: education). involvement in the economy. Many private businesses.
Topic 1.3- Production Possibilities Curve- Use the chart below to create a PPC on the graph.
A B C D E
Hats 0 1 2 3 4
Shoes 30 29 25 15 0
1. How does the PPC illustrate the ideas of
scarcity, trade-offs, and efficiency? Scarcity-
there are only enough resources to produce
up to a given amount. Trade-offs- When more
of one good is produced, less of the other
good is produced. Efficiency- Any point inside
the curve is inefficient. Resources are not
being fully utilized.
2. Label the following points on the graph:
X= Underutilization/inefficient
Y= Efficient
Z= Impossible given current resource
7. Draw a PPC showing constant opportunity cost 8. Draw a PPC showing increasing opportunity cost
9. What is the difference between products that have constant opportunity cost and increasing opportunity costs?
The production of two products might result in a constant opportunity cost if the products have similar resources. That
is, if the resources to make each product are easily adaptable between both products.
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Do not use unless you have purchased an annual license
Microeconomics Unit 1 Study Guide
Basic Economic Concepts
Topic 1.3- (continued)- Answer the question then show what happens as a result of each scenario
10. Identify three things that shift the PPC. 1. Change in resource quantity or quality 2. Change in technology 3.
Change in trade (Trade doesn’t change the amount that can be produced, but changes the amount that can be
consumed)
11. A recession causes 12. Consumers want more pizza 13. More resources to produce cars
unemployment
Topic 1.4- Comparative Advantage and Trade
The table shows the amount of sugar and cars each The table shows the number of hours it takes to produce
country can make with the same number of resources a ton of sausage and a ton of computers
Sugar (tons) # Cars Sausage Computers
Cuba 40(1S costs ¼ Car) 10(1C costs 4 Sugar) Canada 2(1S costs 1/3 comp) 6(1C costs 3 sausg)
Mexico 50(1S costs 2 Cars) 100(1C costs ½ Sugar) UK 10(1S costs 1 comp) 10(1C costs 1 sausg)
1. Which country has an absolute advantage in sugar? 5. Which country has an absolute advantage in sausage?
Mexico because they can produce more sugar Canada. They take less time (This is an INPUT question)
2. What is Cuba’s opportunity cost for producing one 6. What is Canada’s opportunity cost for producing one
car? 4 sugar computer? 3 sausage
3. Which country has a comparative advantage in cars 7. Which has a comparative advantage in computers and
and which has a comparative advantage in sugar? which has a comparative advantage in sausage? The
Mexico has it for cars. Cuba has it for sugar. UK has it for computers. Canada has it for Sausage.
4. Identify the terms of trade that can benefit both 8. Identify the terms of trade that can benefit both
countries. 1 car for ___1___ tons of sugar. (any countries. 1 computer for ___2___ tons of sausage.
number between 4 and ½) (between 3 and 1)
Topic 1.5- Cost-Benefit Analysis
1. Explain the difference between explicit and implicit costs. Explicit costs are the traditional out-of-pocket costs
associated with choosing one course of action. The implicit cost is the monetary or non-monetary opportunity cost of
making that choice.(example: the forgone wage when you go to college full-time or the travelling you can’t do)
Topic 1.6- Marginal Analysis and Consumer Choice
1. What is the utility maximizing rule? Below is your marginal utility for going to the movies (price = $10)
Marginal Utility A = Marginal Utility B and riding go karts (price = $5)
Price of A Price of B
2. If you have $25, what combination of movies
and go-karts maximizes your utility? Movies 2
times and go karts 1 time.
3. What combination maximizes your utility if
you have $40? 3 Movies and 2 go-karts
4. What is the total utility from consuming 3
movies and 2 go-karts? 75 utils =
30+20+10+10+5
©Copyright Jacob Clifford 2022. Ultimate Review Packet
Do not use unless you have purchased an annual license
