Name: Pd. Complete Graph Review for Microeconomics DIRECTIONS: Draw each of the following graphs and fill in the blanks. Basic Economic Concepts *Production Possibilities Curve Concepts: Points on the curve are efficient (full employment) (Label A) Capital Points inside the curve are inefficient, or a recession (Label B) Points outside the curve are currently unattainable with the Goods available resources (Label C) Shift outward means increased production potential/economic growth. Shift inward means resources/potential has been destroyed What could cause this?_ A move along the curve toward production of more capital goods can shift the whole curve outward in the LR. (Label D) Five PPC Shifters (cause economic growth): 1. 2 . Consumption 3 . Goods Comparative Advantage and Terms of Trade Bushel of Corn Bushel of Wheat Wisconsin 1 resource unit 3 resource units Minnesota 5 resource units 9 resource units Which state has the absolute advantage in the production of corn? Is this an input or output problem? Wisconsin Minnesota OC of 1 Corn = Wheat OC of 1 Corn = Wheat Corn comparative advantage? OC of 1 Wheat = Corn OC of 1 Wheat = Corn Wheat comparative advantage? Terms of Trade: Wisconsin will trade 1 for Minnesota will trade 1 for Nature & Functions of Product Markets Demand and Supply: Market-clearing equilibrium Draw & Label: Axes (Price and Quantity) Supply and Demand Equilibrium P & Q Consumer and Producer Surplus Allocation Efficient point Variations: Change in quantity demanded or quantity supplied is only a move along the line and is caused by price changes. Shifts in demand and supply caused by changes in determinants Changes in slope caused by changes in elasticity- (elastic=more horizontal, inelastic = more vertical)Law of Demand: Ceteris Paribas, as price increases, quantity demanded decreases and vice versa. Inverse relation between P & Q. Reasons demand is downward sloping: (NOT determinants of demand) 1 . Substitution effect : 2 . Income effect : Law of Diminishing Marginal Utility : Law of Supply: Ceteris Paribas, as price increases, quantity supplied increases and vice versa. Direct relation between P & Q. Reasons supply is upward sloping: 1 . Law of Increasing Costs : Profit / Revenue incentive : Determinants of Demand Determinants of Supply Price Ceilings and Floors: Draw & Label: Axes, supply, demand, equilibrium P & Q, socially optimal point. After the regulation: new P & Q, consumer and producer surplus and DWL. stoean mod Binding Price Floor (Qd