Chapters 1&2 Flashcards
Economic problem
Limited Resources & Unlimited Needs creates Scarsity
Opportunity Cost
The highest cost, of taking one course of action over another
Production Possibility Curve (PPC)
Graph that shows the combined quantity of good can be produced that share resources
What is a Point that is above, below, and on the PPC mean?
A point above is not feasible, A point below is inefficient, and a point on is feasible and efficient
How does opportunity cost relate to PPC?(linear, CD)
If the PPC is linear the opportunity cost is constant. If the slope is concave downwards the opportunity cost is increasing.
Law of Increasing Opportunity Costs
Opportunity cost will increase as you transfer resources between goods.
Imperfect Transferability of Resources
Resources are not easily transferred from one area of production to another Ex. Farmers aren’t good at making computers.
What factors cause the PPC to shift in or out . In which directions can it shift?
Resources(quantity), Productivity (quality), and technological advancement. It can shift in or out from origin, or only on the ‘y’ or ‘x’ axis.
What is a capital good, and what is another name for it?
It is a good used for production and manufacturing. It is also called an investment good. (Oil pumpjack)
What is a consumer good?
A good that is sent to market for consumption by the consumer. (food)
What happens if a country invests in more consumer goods, or investment goods?
More production of consumer goods mean an economy that grows slower, however there is also a higher quality of life as direct to consumer goods are more accessible. A high production of investment goods indicates a faster growing economy (on PPC) with less availability of consumer goods.
What is Specialization?
Concentration of production on a specific good to lower opportunity cost, thus maximizing their competitive advantage.
Opportunity cost =?
What one sacrifices/What one gains (can use any point as long as the slope is linear)
Why is specialization beneficial?
When countries trade they maximize the profits they can make off of their resources. As well as benefit from the resources being produced in in other countries
What are the three economic problems every society faces? What do the answers to these questions indicate
What to Produce? How to produce it? Who gets what’s produced? Whether its a Command economy, Market economy, or a Mixed economy
