1.1.3 + 1.1.4 the Economic problem and PPFs

Question 1

What is the economic problem

Answer 1

there are finite resources but unlimited wants so economics is concerned how scare resources are allocated among competing uses

Question 2

What choices are made in economics

Answer 2

‘economics is the study of how human beings make choices about what to produce, how to produce it and whom to produce it for’
consumers- what to consume
producers-how to use resources
government- regard natural resources

Question 3

What are factors of production

Answer 3

Land- natural resources
Labour- human resources
Capital- tools and machinery
Enterprise- organiser of factors

Question 4

What are renewable resources

Answer 4

replaceable over time, but may be depleted by over consumption
e.g solar

Question 5

What are non renewable resources

Answer 5

finite, cant be replenished, e.g fossil fuels

Question 6

What is an opportunity cost

Answer 6

value of the next best alternative forgone when making a decision

Question 7

What is a production possibility frontiers

Answer 7

shows the max productive potential of an economy/ max combination of goods and services that can be produced in a set period with available resources

Question 8

What do placements of points show on a PPF

Answer 8

On the PPF- productively efficient
Inside the curve- resources not being utilised efficiently
Outside the curve- unobtainable with current resources
Exception- through trade countries can consume beyond boundaries/ scarcities of a PPF

Question 9

Types of growth on PPF

Answer 9

short term- movement towards PPF, increase in demand and output and decrease in unemployment
long term- outward shift of PPF, due to increased productivity
Growth of one industry- skewed shift of PPF

Question 10

Types of decline on PPF

Answer 10

short term- movement away from the PPF, when rise in unemployment, resources aren’t utilised
long term- inward shift of the PPF, when depletion of resources

Question 11

How to find opportunity cost on a PPF

Answer 11

use graph to find forgone alternative

Question 12

What is the marginal rate of transformation

Answer 12

units of good x forgone to produce an extra unit of good y (opportunity cost)

Question 13

Why is the PPF a concave shape

Answer 13

resources aren’t perfectly mobile or perfectly substitutional so there is an increasing MRT