Chapter 1 Flashcards
Positive statement
Objective + can be tested
Normative statement
Subjective opinion and untestable
Need
Humans need it to survive
Want
Something that people feel improves their standard of living but not required for survival
Economic welfare
Standard of living or general well being of people in society
Factors of production
Country’s productive economic resource
Labour
Land
Capital
Enterprise
Basic economic problem
Scarce economic resources compared with unlimited wants
Fundamental economic questions
What to produce (what quantities)
How to produce
To who
Free market (capitalist economy)
Decisions made only by the interaction of consumers and firms (no gov intervention)
Command (centrally planned) economy
Decisions made by planning department of the government
Opportunity cost
Cost of the next best alternative that you give up when you have to make a choice
Production possibility curve
Shows the maximum possible output combinations of two goods in an economy, assuming full and efficient employment of resources
Factors causing outward shift of PPC
technology improvements (increased productivity)
Discovery of new resources (oil)
Improvements in education and training
Increase in working population
Factors causing inward shift of PPC
Natural disasters
Wars
Global warming
Prolonged recession (permanent productive capacity, firms close, employees lose skills)
How can POC show opportunity cost
As more capital goods consumer, more consumer goods must be given up
How can PPC show economic growth
Outward shift
Productive efficiency
Maximum output produced from the avaliable factors of production at lowest possible cost
Allocative efficiency
When an economy’s factor of production is used to produce the combination of goods and services that maximises society’s welfare (takes into consideration society)
MC = MB
Where’s productive efficiency on PPC
on the curve
Where’s allocative efficiency on the PPC
Anywhere on the curve (can be on produce efficiency)
