beginning Flashcards
The economic problem with (scarcity and choice)
There are limited resources yet unlimited human wants and needs forcing individuals, firms, and government to make decisions about how to allocate these resources efficiently.
Scarce resources meaning
Any resources that is limited in supply relative to the demand for it.
what are the scarce resources?
factors of production when combined together can produce goods and services
Factors of production:
Capital
Enterprise
Land
Labour
Meaning of Capital in economics ?
man made aids to production: Things that man has made allowing for greater production of goods and services to take place- Machinery, factories, shops, school, hospitals, computers
What are the three fundamental choices of how scarce resources can be allocated?
What to produce: in a market economy businesses decide based on consumer demand
How to produce: Businesses decide based on what’s cost effective and productive to minimise use of scarce resources
Who to produce for: those who have enough income to produce goods and services or Government decide
what is the meaning of Opportunity cost?
Used to measure wether choices that have been made are good or bad
opportunity cost is the cost (value ) of the next best alternative.
the value of the next best alternative is greater than the value of our current choice/ option.
work out the value of our crest choice and the value of our alternative choice (opportunity cost)
whatever had greater value you should choose
what do PPF ( production possibility frontiers) curves show?
On a micro level it shows the maximum possible production of 2 goods or services that can be produced with a given level of factors of production.
and shows the various combinations of 2 goods and services that can be produced with given factors of production.
on a macro level it shows the maximum possible production of all goods and services which can be produced with the level of factors of production in the economy, also tells us the various combinations of all goods and service that can be produced with the factors of production in the economy.
what does opportunity cost PPF show ?
shows the law of opportunity cost- was you produce more of one good the opportunity cost for producing each additional unit for the good increases - this is because there is more cost involves ay you then have to make less tablets for example - you are giving up one of the other thing to make more of your current thing there for there is more opportunity cost.
what are the two opportunity cost PPF diagrams
linear PPF- constant opportunity cost
Concave PPF - law of increasing opportunity cots - factors of production shift to suit a good or service thus producing more
what are the 3 types of efficiency in these curves
productive
allocative - weather what is being produced is satisfying consumer demand
Pareto- nobody can be made better of without someone being worse off
difference between a macro
and micro PPF
both can be the concave or linear yet micro would have an specific good or service on each axis where as Macro would have just goods and services on each axis
how would u interpret points on a micro economic graph in terms of productive efficiency ?
Any point outside the curve shows that all factors of production are being being used (productive efficiency)
Any point inside the curve shows that’s we a wasting factors of production by not getting maximum usage ( Productive inefficiency)
Any point outside the curve shows that the target is unattainable with the given factors of production
how would u interpret points on a Macro economic graph in terms of productive efficiency ?
any point inside the curve would indicate not utilising full factors of production because of unemployment of labour or capital
interpret points on a Macro/ micro economic graph in terms allocative efficiency ?
we cannot tell wether allocate efficiency is being met became we don’t know consumer demand on a PPF ( because if a point was on a graph showing more laptops than tablets but there was higher demand for tablets over laptops that would not be allocated efficiency.
