Economics Supply Concepts Quiz

The value of the next best alternative forgone when making a choice. For example, choosing to study for an exam means giving up the chance to go to a movie. The opportunity cost is the value of the lost movie experience.

A graphical representation showing the maximum combinations of two goods or services that an economy can produce, given its resources and technology. It assumes full employment of resources and efficient production.

Any point on the PPF curve represents an efficient allocation of resources, meaning the economy is producing the maximum possible output with the available resources. This is where the economy is operating at its full potential.

A point inside the PPF curve represents an inefficient allocation of resources, meaning the economy is not producing the maximum possible output. This means there are unused resources or inefficiencies in production

A shift of the PPF curve to the right, representing an increase in the economy's productive capacity. This means the economy can now produce more of both goods and services due to factors like technological advancements, increased workforce, or more resources.

A shift of the PPF curve to the left, representing a decrease in the economy's productive capacity. This can happen due to natural disasters, war, or a decline in resources and technology.

The movement along the PPF curve, where production shifts from one point to another. This involves reallocating resources between sectors, leading to an increase in production of one good while decreasing production of the other.

The increased ability to produce goods and services over time. This is caused by factors like investment in new technology, education, and infrastructure.

A higher price acts as a signal to producers to increase supply, as it indicates a greater demand for the product.

Prices act as signals for both producers and consumers. Higher prices signal higher demand, while lower prices signal lower demand.

The demand for one good depends on the demand for another good or service. For example, the demand for train tickets is dependent on the demand for work.

A good that has multiple uses faces composite demand. For example, wheat can be used for bread or biofuel, and increased demand for wheat as biofuel affects the price of bread.

When two goods are complementary and needed together, they experience joint demand. For example, printers and ink cartridges.

The principle that assumes economic agents, like firms and consumers, make decisions to maximize their own economic well-being.

A change in price causes a movement (or sliding) along the supply curve, reflecting a change in the quantity supplied. For instance, an increase in price could encourage companies to supply more.

The supply curve slopes upwards because as prices rise, firms find it more profitable to produce and sell more. At higher prices, they can earn greater revenue, covering the increasing cost of producing additional goods.

Firms in a competitive market are considered price takers because they must accept the prevailing market price. Trying to set prices higher would lead to no sales, as consumers would buy from other firms offering the prevailing price.

An increase in supply occurs when producers are willing and able to offer more goods at every price, shifting the supply curve to the right.

A decrease in production costs, such as lower wages or cheaper raw materials, can encourage firms to produce more at every price, leading to an increase in supply.

An increase in the number of producers leads to an increase in the total amount supplied in the market, resulting in a shift to the right of the supply curve.

The price mechanism refers to the way supply and demand forces interact to determine the equilibrium price and quantity in a market.

Market equilibrium occurs when the quantity supplied by firms precisely matches the quantity demanded by consumers at a specific price. There is no tendency for the price to change under these conditions.

A situation where individuals' actions create costs for others that are not reflected in market prices. For example, pollution from factories harms the environment, but the factories don't pay for the damage.

A situation where individuals' actions create benefits for others that are not reflected in market prices. For example, someone getting vaccinated reduces the spread of disease, benefiting everyone.

A good that is rivalrous in consumption, meaning one person's use of the good prevents another from using it, and excludable, meaning it is possible to prevent people from using the good if they don't pay for it. Examples include food, clothing, and cars.

A good that is non-rivalrous, meaning one person's use of the good does not prevent another from using it, and non-excludable, meaning it is impossible to prevent people from using the good even if they don't pay for it. Examples include national defense, clean air, and streetlights.

The problem where individuals can enjoy the benefits of a public good without contributing to its cost. For example, someone can enjoy streetlights without paying taxes, leading to a lack of incentive for the government to provide such services adequately.

Goods that have some features of both private and public goods. For example, roads are partially non-rivalrous since many cars can use them simultaneously, but they are also partially excludable through tolls.

Areas experiencing disproportionately high poverty due to a lack of economic activity, often stemming from industrial decline or changes in economic structure.

Government interventions designed to stimulate economic growth and create jobs in specific regions or industries.

The situation where government intervention in the economy results in a net loss of welfare.

Government bodies lacking profit incentives may not be as efficient or responsive to public needs as private companies.

Unintended consequences from government interventions can create new problems while trying to solve an existing one.

Government attempts to stabilize farmers' incomes by setting minimum prices, which can lead to overproduction and inefficiency.

Increasing taxes on tobacco products can make it more profitable for people to smuggle cigarettes from other countries.

Setting a maximum price on rental properties can reduce the availability of rental housing, potentially worsening a housing crisis.

A tax placed on a specific good, with a fixed amount charged per unit. For instance, tobacco duty is £15 per pack, regardless of the price.

A tax calculated as a percentage of the good's price. The higher the price, the more tax is paid. For example, UK VAT is 20% of the purchase price.

A tax designed to correct market failures by making consumers pay the full social cost of a good. This can reduce demand and move production to the socially efficient level.

A payment from the government to firms, partially covering the cost of producing a good. This lowers the price for consumers and encourages higher production.

A policy for the government to raise funds for using in other areas, like public healthcare or education.

When taxes are high, people may be tempted to avoid paying them, often through illegal means like smuggling goods or not reporting income.

A tax structure where lower-income earners pay a higher percentage of their income in taxes compared to higher-income earners.

Setting different prices for driving in different times and locations, based on the level of congestion. This aims to charge drivers the true social cost of their driving.