Kendall Kriesen Mr Coker Period 3 AP Economics 19 January 2015 Problem Set 1 1 a The relationship between scarcity choices and trade offs is that since every resource in the world is limited sacare but society has unlimited wants for said resources the society is forced to make choices on what will benefit them the most with trading off what they would want for what they actually need 1 b Price is what the consumer will be willing and able to buy a product at while the opportunity cost is what the consumer is giving up to have the product or service Costs are what resources it takes the producer to produce the product 1 c i Consumer good are products that only have a one time use while capital goods are used to make the consumer goods and have a more than one time use example the consumer good being cereal while the capital good being the labor associated with making the cereal 1 c ii Normative economics are based off of value judgements and are opinion based ex The cereal company should improve the way the manage their resources While on the opposite end is positive economics which are solely based on the facts usually involving something you could actually see or a statistic that has been proven ex Better management of resources increases the production of cereal 1 1 c iii Allocative and productive efficiency differ in that productive efficiency focuses on putting all possible resources to best use and being able to produce as much as possible from those resources example Putting all our resources into health care while letting other goods and services suffer from lack of resources while allocative efficiency focuses on using the right amount of resources to a specific good in comparison to other goods example sharing the resources between healthcare and other goods and or services 1 c iv In a centrally planned economy the government owns all resources and decides what is and how products are to be produced example communism in Cuba and North Korea versus a free market economy where there is little government involvement and individuals control the resources example the United States 1 c v The resource market sells the resources to the product market which produces the goods and services that are then sold to the consumers 2 2 2 a If Ford started to produce at combination A the only thing that would be being produced would be trucks and not any cars If Ford started to produce at combination G the only thing being produced would be cars and not any trucks Neither combinations would be desirable because the production possibilities in either would cut the market in half and not provide for a better profit for the supplier since they would only be nurturing to one type of vehicle buyer 2 b At point x the production would be unefficient and at point y the production would be inefficient and unemployment would be occurring 3 2 c The graph shows Opportunity costs by showing the decreasing or increasing units being given up Efficiency by graphing the curve and showing the points on said curve and also by labeling some of the inefficient points that are not on the curve Unemployment the space below to curve The law of increasing opportunity costs the more trucks produced the less cars will be produced Economic Growth sliding to different points on the graph 3 a In moving from point a to point b you would be losing 5 units of guns MOving from point b to point c you would be losing an additional 5 units of guns Though the opportunity cost is 5 units per point you are gaining 1 unit of butter per losing those 5 units of guns 3 b The opportunity cost from moving from point a to point b would be 5 units of guns Moving from point c to e would be4 per unit opportunity cost 4 3 c Graph a shows an increasing opportunity cost because in comparison to graph b moving from point c to d in graph a you would be losing 5 units of guns while in graph b you would only lose 3 units of guns and be gaining the same amount of butter 3 d 1 An increase in 2 The amount of labor 3 Gun trade has increased gun making technology increases due to population boom due to impending war threats 4 a Law of Demand an inverse relationship between quantity and price price falls demand rises prices rise demand falls Real world example When a new pair of Nikes are released at 180 and no one is willing to buy them which makes demand low for that product but if Nike reprices the shoes at a more comfortable price say 110 then consumers will more likely be more willing and able to pay which in turn will make demand increase Law of Supply a direct positive relationship between the price and quantity supplied Prices increase quantity produced increases price decrease quantity produced decreases Producers only care about making the most profit of an item Real world example When the Iphone 6 was 5 released many people stood in line and paid what ever price Apple the producers were initially asking for so producers were able to produce alot of the product since the demand was high and people were willing and able to pay what the producer was asking but at the initial thrill and hype as of the iphone started to diminish the demand tarte to decrease so producers started to decrease their production 4 b Law of Diminishing Marginal Utility The more a person uses the same unit of product the less satisfying the use will be for said unit of product Real World Example The first time someone has chipotle and decide that they love it so much so they go there every day for a week but everyday they go compared to the last the satisfaction isn t as good or as high than the last 4 c Normal Goods income increase demand increase income decrease demand decrease dependent on the income of the consumers Real World Example A person gets a raise and is able to buy more products with the more money he is earning Inferior Goods Income increase demand decrease income decrease demand increase Real World Example Shopping at Costco or Sams a consumer is trying to save money on inferior good when they have low income but when their income rises they stop caring so much about getting more bang for their buck 6