Unit 1: Basic Economic Concepts

Define scarcity and economic resources.

• Individuals and societies are forced to make choices because most resources are scarce.
• Enduring understanding MOD-1: The production possibilities curve (PPC) model is used to demonstrate the full employment level of output and to illustrate changes in full employment.

a. Define (using graphs as appropriate) the PPC and related terms. b. Explain (using graphs as appropriate) how the PPC illustrates opportunity costs, tradeoffs, inefficiency, efficiency, and economic growth or contraction under various conditions. c. Calculate (using data from PPCs or tables as appropriate) opportunity cost.

• The PPC is a model used to show the tradeoffs associated with allocating resources.
• The PPC can be used to illustrate the concepts of scarcity, opportunity cost, efficiency, underutilized resources, and economic growth or contraction.
• The shape of the PPC depends on whether opportunity costs are constant, increasing, or decreasing.
• The PPC can shift because of changes in factors of production as well as changes in productivity/technology.
• Economic growth results in an outward shift of the PPC.
• Enduring understanding MOD-1: The production possibilities curve (PPC) model is used to demonstrate the full employment level of output and to illustrate changes in full employment.

a. Define absolute advantage and comparative advantage. b. Determine (using data from PPCs or tables as appropriate) absolute and comparative advantage.

• Absolute advantage describes a situation in which an individual, business, or country can produce more of a good or service than any other producer with the same quantity of resources.
• Comparative advantage describes a situation in which an individual, business, or country can produce a good or service at a lower opportunity cost than another producer.
• Enduring understanding MKT-1: Production and consumption increase by engaging in trade.

a. Explain (using data from PPCs or tables as appropriate) how specialization according to comparative advantage with appropriate terms of trade can lead to gains from trade. b. Calculate (using data from PPCs or tables as appropriate) mutually beneficial terms of trade.

• Production specialization according to comparative advantage results in exchange opportunities that lead to consumption opportunities beyond the PPC.
• Comparative advantage and opportunity costs determine the terms of trade for exchange under which mutually beneficial trade can occur.
• Enduring understanding MKT-1: Production and consumption increase by engaging in trade.

a. Define (using graphs as appropriate) the law of demand. b. Explain (using graphs as appropriate) the relationship between the price of a good or service and the quantity demanded.

• The law of demand states there is an inverse relationship between price and quantity demanded, leading to a downward-sloping demand curve.
• Enduring understanding MKT-2: In a competitive market, demand for and supply of a good or service determine the equilibrium price.

Explain (using graphs as appropriate) the determinants of demand.

• Factors that influence consumer demand, such as changes in consumer income, cause the market demand curve to shift.
• Enduring understanding MKT-2: In a competitive market, demand for and supply of a good or service determine the equilibrium price.

a. Define (using graphs as appropriate) the law of supply. b. Explain (using graphs as appropriate) the relationship between the price of a good or service and the quantity supplied.

• The law of supply states there is a positive relationship between price and quantity supplied, leading to an upward-sloping supply curve.
• Enduring understanding MKT-2: In a competitive market, demand for and supply of a good or service determine the equilibrium price.

Explain (using graphs as appropriate) the determinants of supply.

• Factors that influence producer supply, such as changes in input prices, cause the market supply curve to shift.
• Enduring understanding MKT-2: In a competitive market, demand for and supply of a good or service determine the equilibrium price.

Define (using graphs as appropriate) market equilibrium.

• Equilibrium is achieved at the price at which quantities demanded and supplied are equal.
• Enduring understanding MKT-2: In a competitive market, demand for and supply of a good or service determine the equilibrium price.

a. Define a surplus and shortage. b. Explain (using graphs as appropriate) how prices adjust to restore equilibrium in markets that are experiencing imbalances. c. Calculate (using graphs as appropriate) the surplus or shortage in the market experience an imbalance.

• Whenever markets experience imbalances—creating disequilibrium prices, surpluses, and shortages—market forces drive prices toward equilibrium.
• Enduring understanding MKT-2: In a competitive market, demand for and supply of a good or service determine the equilibrium price.

Explain (using graphs as appropriate) how changes in demand and supply affect equilibrium price and equilibrium quantity.

• Changes in the determinants of supply and/or demand result in a new equilibrium price and quantity.
• Enduring understanding MKT-2: In a competitive market, demand for and supply of a good or service determine the equilibrium price.