Economic problem Flashcards
What is the Problem of Scarcity?
Scarcity arises because resources are limited while human wants are unlimited.
What choices must society make due to scarcity?
Society must decide what to produce, how to produce, and for whom to produce.
Define opportunity cost.
Opportunity cost is the next best alternative forgone when a choice is made.
How does opportunity cost affect consumers?
Consumers must decide how to allocate their limited income among competing goods and services.
How does opportunity cost affect producers?
Producers must decide how to allocate their limited resources (labor, capital, land) to produce goods and services.
How does opportunity cost affect government?
Government must decide how to allocate limited resources in the economy (e.g., spending on healthcare vs. education).
What does the Production Possibility Curve (PPC) represent?
The PPC is a graphical representation showing the maximum possible output of two goods or services that an economy can produce using its resources fully and efficiently.
What is the maximum productive potential of an economy as shown by the PPC?
The PPC shows the maximum combinations of goods an economy can produce with full resource utilization.
What do points on the PPC represent?
Points on the PPC represent fully employed resources.
What do points inside the PPC represent?
Points inside the PPC represent unemployed or underutilized resources.
What does the slope of the PPC represent?
The slope of the PPC represents opportunity cost.
What does an outward shift of the PPC indicate?
An outward shift of the PPC represents positive economic growth (increased productive capacity).
What does an inward shift of the PPC indicate?
An inward shift of the PPC represents negative economic growth (decreased productive capacity).
What do points outside the PPC represent?
Points outside the PPC are unobtainable with current resources.
List possible causes of positive economic growth.
- Increase in resources
- Technological advancements
- Investment
- Increased labor force
List possible causes of negative economic growth.
- Depletion of resources
- Natural disasters
- Decline in technology
- War or conflict
- Economic policies
