economic decision making

Question 1

Opportunity cost

Answer 1

Opportunity cost relates to the value of production or consumption forgone (i.e. given up) in one area, when scarce resources are allocated to their next best alternative use.

Question 2

productive capacity

Answer 2

Productive capacity represents the physical limits on the value of a nation’s output of goods and services. Its level reflects the quantity and quality of resources available. It is represented by the PPF on a PPD.

Question 3

PPF

Answer 3

Production possibility frontier (PPF) shows a nation’s productive capacity or physical limits to production when all resources that are available are used to maximum efficiency.

Question 4

PPD

Answer 4

Production possibility diagram (PPD) is used to illustrate nations productive capacity, along with the oppurtunity costs associated with making economic choices or decisions

Question 5

cost-benefit analysis

Answer 5

Cost–benefit analysis is a matter of adding up the anticipated value of all the direct and indirect costs of a particular decision (e.g. resource and monetary costs, time, opportunity costs) in both the short-term and long-term, and comparing these against the total value of the anticipated benefits. It is used by individuals, firms and governments to help guide decisions.

Question 6

Trade off

Answer 6

Trade-off exists when to gain benefits, other things may have to be given up or sacrificed, resulting in compromise.