chapter 1: nature of eco

Question 1

identify the economic problem

Answer 1

the supply of resources is limited or finite in relation to the demands or wants of individuals

Question 2

identify the equation of scarcity and explain why scarcity is an issue

Answer 2

limited resources + unlimited wants = relative scarcity

Scarcity arises as the demand for goods and services exceeds the supply of resources used to produce those goods and services at any one point in time

Question 3

the need for choice and by individuals and society

Answer 3

consumers have the choice of which wants and needs should be satisfied in the present and which in the future

Societies allocate limited resources or income

Question 4

define opportunity cost, give an example

Answer 4

Opportunity costs are the benefits lost when you forgo something and choose the next best alternative
eg. If you have $10 and spend it on food instead of drinks, the opportunity cost is the $10 worth of drinks forgone

Question 5

define PPF

Answer 5

The Production Possibilities Frontier (PPF) is a graph that shows all the different combinations of output of two goods that can be produced using available resources and technology.

Question 6

identify the assumptions for a standard ppf

Answer 6

1. only two goods are produced
2. all resources are fully employed
3. level of technology is fixed or constant
4. resources are fixed or finite

Question 7

explain how the ppf represents opportunity cost

Answer 7

the ppf represents how if you were to produce more of one good, then the opportunity cost of the other good would be higher.

Question 8

explain why the ppf is curved and define the law of diminishing returns

Answer 8

gains from committing additional marginal resources to smth depend on how much is already spent on that thing
ie when you spend a lot on A and nothing on B, when you shift a small number of resources to B it wouldn’t really affect A cos A already has a lot but it would be rlly substantial to B

law of diminishing returns: as additional increments of resources increase the marginal benefit from the additional increments will decline

Question 9

how does technological advancement affect a ppf

Answer 9

Technological advancement improves efficiency, enabling us to produce higher quantity of a good with the same resources thus shifting the ppf outward in one good.

Question 10

how to shift the whole ppf outwards?

Answer 10

PPf may shift outward due to an increase in inputs such as new resources or an expansion in population through immigration/birth thus increasing the workforce. It would improve the production of both goods on the ppf

Question 11

points on the ppf
identify the features of points on the ppf
A - on the ppf curve/line
B - underneath the ppf
C - outside the ppf

Answer 11

A - all production is efficent
B - inefficient allocation of resources and inefficient in production
C - no such thing