1) Scarcity, choice and the allocation of resources Flashcards
What is the basic economic problem?
The basic economic problem is scarcity of economic resources in regards to society’s unlimited wants and needs. Also, how choices must be made when deciding how to allocate these resources.
What to produce and in what quantities?
One of the question asked when dealing with the basic economic problem.
Producers can either make consumer goods or capital goods.
How should goods and services be produced?
Labour intensive or capital intensive
Whom should goods and services be allocated?
Decisions about who in society gets what depending on the economic system that prevails.
Forms of economic system:
- Free market: Decisions made solely by the interactions of consumers and firms, with no gov intervention
- Command economy: Decisions made solely by the gov
What is opportunity cost?
In making any choice regarding how to allocate scarce resources, something must be given up. This is the concept of opp cost.
What are economic goods?
Economic goods are that use up scarce economic resources in their production.
What are free goods?
Free goods are unlimited in supply and availability and their opp cost of consuming them is 0.
What are Production possibility curve diagrams?
A ppc is a diagram which depicts the maximum combination of two goods that can be produced by an economy, assuming all resources are fully employed and used efficiently.
ACE of a ppc
axis- good y and good x
curves
equilibrium
Points on the curve means…
All factors of production are fully employed
Points inside the area in the curve means…
Operating inefficiently, with unused resources
Shifts in the PPC
Shifts occur when the quantity and quality of factors of production changes
An outward shift occurs when…
Improvements in quantity and quality of factors of production
An inward shifts occurs when…
worsened in quantity and quality of factors of production
