1.1.4 Scarcity, Choice And The Allocation Of Resources Flashcards
1
Q
What is economic activity?
A
- The production or goods and services.
- The consumption of goods and services.
2
Q
Who are the three main economic agents?
A
- Producers
- Consumers
- Governments
3
Q
Define ‘opportunity cost’
A
The next best alternative foregone.
4
Q
What are the problems with opportunity cost?
A
- Not all factors have alternatives.
- Some alternatives are unknown.
- Agents may lack information on alternatives.
- It can be difficult to switch some factors to another use.
5
Q
When is an opportunity cost useful?
A
When deciding how to allocate resources.
6
Q
What is a trade off?
A
People face a trade off when they make a choice.
E.g. if you buy a video game you can not spend that money on a movie.
7
Q
Is an opportunity cost just monetary?
A
In some cases opportunity cost exceeds monetary value.
E.g. attending university. As well as the tuition fees, you are also giving up time that could’ve been spent earning money at a job. This makes the total opportunity cost greater than just the financial cost of university because there are lost earnings.
