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Econ Higher > Limited Resources, Unlimited Wants > Flashcards

Limited Resources, Unlimited Wants Flashcards

1
Q

Where is scarcity true?

A

Everywhere, scarcity is a universal fact.

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2
Q

What is the fundamental economic problem?

A

We must use our limited resources to produce the items that we value most highly.

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3
Q

What are the two implications of unlimited wants?

A

Because of scarcity there is a maximum amount of G + S we can produce
We have to make choices on what to produce and what wants and needs to satisfy

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4
Q

How can we get the most out of resources and what does this depend on?

A

To get the most out of our resources we must allocate them, this depends on economic systems.

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5
Q

What is an economic system?

A

It is how each society uses the property right, resource allocation arrangements and incentives to solve the economic problem.

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6
Q

What does PPF stand for?

A

The Production Possibilities Frontier, also known as the PPC (Production Possibilities Curve)

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7
Q

What is the PPF used to illustrate?

A

The ideas of scarcity, choice and opportunity cost for a country as a whole can be illustrated by the PPF.

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8
Q

What is the PPF/PPC?

A

The boundary between combinations of goods and services that can be produced and those that cannot. It also shows the maximum combination of outputs given resources and technology.

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9
Q

What are goods and services that can be produced called on a PPF?

A

Attainable

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10
Q

What are goods and services that can not be produced called on a PPF?

A

Unattainable

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11
Q

How can scarcity be shown on a PPF graph?

A

Because you can have a result on the line but not under it. This shows scarcity as going beyond the line is impossible since we don’t have the resources or technology.

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12
Q

How can inefficiency be shown on a PPF graph?

A

With a point inside the PPF. This is an inefficient use of resources because it is possible to have more of both goods by being on the production possibility curve

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13
Q

How can choice be shown on a PPF graph?

A

Choice is illustrated by the choice we need to make between available combinations along the production possibility curve

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14
Q

How can opp cost be shown on a PPF graph?

A

Opportunity cost can be illustrated by the negative slope of the curve which indicates that more of one good can only be obtained by sacrificing the other good.

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15
Q

How do you calculate the opp cost when you move from a point in the graph to a point on?

A

There is no opportunity cost if you move in this way

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16
Q

Can you consume at a point beyond the line?

A

Yes, when you have trade deficit

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17
Q

What is trade deficit?

A

When you import more than you export, your imports are worth more than your exports

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18
Q

How do you calculate GDP?

A

Consumers + Governments + Firms + (exports - imports)

C + G + I + (x - M)

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19
Q

What’s the difference between GDP and GNP?

A

GDP is within the border of the country, GNP is not within the border. GNP includes the goods and services companies of that country have produced outside the border.

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20
Q

What are the two types of economies worldwide?

A

Open and closed

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21
Q

What is a closed economy?

A

A country that has a closed economy does not trade with the rest of the world

22
Q

What is an open economy?

A

A country that has an open economy does trade with the rest of the world.

23
Q

What does the gradient of a PPF show?

A

Opportunity cost

24
Q

What is the opportunity cost of CDs in cassettes?

A

The number of cassettes you must give up for an additional or extra CD. (Marginal cost)

25
Q

What is specialisation?

A

Non homogeneous resources, not all resources are equally productive in all activities.

26
Q

What is the law of increasing (opportunity) cost?

A

This law states that the more you produce of a good, the more you have to give up of the other good.

27
Q

Why does the law of increasing opportunity cost happen?

A

Because of specialisation. The first resources that are switched are less specialised.

28
Q

What happens to the PPF if there is no specialisation?

A

The opportunity cost is equal and the slope is linear.

29
Q

How do you calculate the gradient of a linear slope?

A

Change in y over change in x

30
Q

How do you calculate the gradient of a curved slope?

A

Create a tangent and then calculate change in y over change in x

31
Q

Are points on the PPF efficient?

A

Yes, if a point is on the PPF it means resources are being fully utilised.

32
Q

When is production efficiency achieved?

A

When you cannot produce more of one good without producing less of another

33
Q

How is the opportunity cost calculated on the PPF?

A

Decrease over increase

Give up over gain

34
Q

If your PPF is bowed outwards, will opportunity cost increase or decrease when you go up and down?

A

It will always increase whether you go up or down

35
Q

If you know the opportunity cost of CDs/cassettes how can you calculate the opportunity cost of cassettes per CDs?

A

It is just the reciprocal

36
Q

In macro terms what is economic growth?

A

Increase in GDP

37
Q

In micro terms what is economic growth?

A

An outward shift of the PPF

38
Q

What are two ways to outwardly shift the PPF?

A
  1. Better use of resources

2. Increase capital goods

39
Q

What is the type of econ growth with better use of resources?

A

Intensive econ growth

40
Q

What is the type of econ growth with increasing capital goods?

A

Extensive econ growth

41
Q

What is the difference between extensive and intensive economic growth?

A

Extensive might lead to an outward shift, intensive might lead to an outward shift OR a rotation.

42
Q

What is a rotation?

A

A shift but only to one side. You want a shift outwards and to the right.

43
Q

What is economic contraction?

A

An inward shift due to less resources

44
Q

What is the opportunity cost of economic growth?

A

Less consumer goods today

45
Q

What is the law of diminishing return?

A

When the amount of one input is increased in equal increment, holding all other inputs constant, the result will be smaller increase in output.

46
Q

In what ways can the Law of Diminishing Return be explained?

A
  1. Output increasing but at a decreasing rate
  2. Marginal product of Labour decreases
  3. Marginal cost decreases
  4. Profit decreases
47
Q

Why does specialisation cause increase?

A

Because of division of labour

48
Q

Why does the rate of increase decrease with the law of diminishing return?

A

It increases because of specialisation but the rate of increase can decrease because of exhaustion of specialisation.

49
Q

What does improvements in weather do to the PPF?

A

Shifts it out

50
Q

What does better use of unemployed resources do to the PPF?

A

You move from a point in to a point on the line

Econ Higher (23 decks)

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