Chapter 1 On Scarcity Opportunity Cost And PPF Flashcards
What is the fundamental economic problem
Scarcity
How best to make decisions about the allocation of scarce resources among competing uses so as to improve and maximise human happiness and welfare
What is scarcity
Scarcity results from the fact that people have unlimited wants but resources to meet these wants are limited. In essence, people would like to consume more goods and services than the economy is able to produce with its limited resources
What is a PPF curve
A production possibility frontier shows the maximum potential output of a combination of goods and services an economy can achieve in a given time, when all the resources are being used efficiently
What does it mean if there is points that is on the curve
This means that the business is said to be economically and productively efficient e.g all available resources are being used to maximise output
What are assumptions that are made when drawing a PPF curve
There are a fixed number of resources in an economy
There is a constant state of technology e.g no improvements to increase in production/productivity
What is a relocation of resources on the PPF curve and why might this happen
A relocation of resources is shown on a PPF curve when the points moves is moved along the curve, this shows how the production of one good is increased whilst the production of another is decreased e.g capital and consumer goods.
This may be done by the government to increase wellbeing
What is the opportunity cost of providing more capital goods compared to consumer goods
Consumer goods provide a direct benefit to individuals, so contribute to living standards of the economy
A decrease in consumer goods = decrease in living standards in the short run
An increase in capital goods = an increase in output of consumer goods in long run = an increase in living standards in the long run
What is economic economic growth and how can it be represented
Economic growth is an increase in quality or quantity of resources which results in an increase in maximum productivity potential of an economy.
This is represented by an outwards shift in the PPF curve
What are factors that cause an outwards shift in the PPF curve
Economic growth,
Advances in technology - it increases productivity
increase in investment, - increases capital which increases consumer goods
more education or training for workers - increase quality of workers, increase productivity workers = increase productive potential
What does an inwards shift of the PPF curve show and how is it caused
It shows an economic decline
Could be caused by war and natural disasters where resources may get destroyed
