Economics Unit 1 Review Flashcards
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Why are scarcity and choice are problems that every society faces?
Scarcity exists because resources are limited but people’s wants and needs are unlimited. Societies must decide how to distribute these scarce resources effectively. This leads to the problem of choice, where decisions must be made about what to produce, how to produce, and for whom to produce.
How do entrepreneurs fuel economic growth?
Entrepreneurs fuel economic growth by creating new businesses that generate jobs & income. They introduce innovative products & services improving efficiency & meeting consumer demands. Their investment drives production & expands industries, increasing overall economic activity. Entrepreneurs also encourage competition, which leads to better quality & lower prince for goods & services.
What is the three economic factors of production and the differences
between physical and human capital?
The three economic factors of production are land, labor, and capital. Land includes natural resources, labor is human effort in production, and capital refers to tools, equipment, and facilities used to create goods and services. The difference between physical and human capital is that physical capital consists of tangible assets like machinery and tools, while human capital represents the knowledge, skills, and expertise of workers.
How does scarcity affect the factors of production?
Scarcity affects the factors of production by limiting the availability of resources such as land, labor, and capital. This forces societies to make choices about how to allocate these limited resources efficiently. As a result, businesses must prioritize which goods and services to produce. Scarcity also drives innovation as producers seek ways to use resources more effectively to meet demand.
Why does every decision involve trade-offs?
Every decision involves trade-offs because resources like time, money, and effort are limited. Choosing one option means giving up the opportunity to pursue another. This happens because it’s impossible to satisfy all wants and needs simultaneously. Trade-offs are the cost of making choices in a world of scarcity.
What is the concept of opportunity cost?
The concept of opportunity cost refers to the value of the next best alternative that is given up when a decision is made. It represents the benefits or opportunities lost by choosing one option over another. Opportunity cost helps individuals and societies evaluate the true cost of their choices. Understanding it ensures more informed and efficient decision-making.
How do people make decisions by thinking at the margin?
People make decisions by thinking at the margin when they consider the additional benefits and costs of a small change. Instead of making all-or-nothing choices, they evaluate whether doing slightly more or slightly less of an activity is worth it. For example, they may decide to work one extra hour if the benefit (income) outweighs the cost (time lost for leisure). This approach helps optimize decisions by focusing on incremental adjustments.
How to interpret a production possibilities curve?
A production possibilities curve (PPC) illustrates the maximum combinations of two goods or services that an economy can produce with its available resources and technology. Points on the curve represent efficient use of resources, while points inside the curve indicate inefficiency. Points outside the curve are unattainable with current resources. The curve’s shape shows opportunity cost: a bowed-out shape reflects increasing opportunity costs, while a straight line indicates constant opportunity costs.
How do production possibilities curves show efficiency, growth, and
cost?
Production possibilities curves (PPC) show efficiency by representing points on the curve where all resources are used optimally. Growth is illustrated by an outward shift of the curve, indicating an increase in resources, technology, or productivity. Cost is represented by the opportunity cost, shown by the trade-offs between producing more of one good at the expense of another. The curve’s shape highlights how resources are allocated and the sacrifices involved in production decisions.
Why a country’s production possibilities depend on its resources and
Technology?
A country’s production possibilities depend on its resources and technology because these determine what and how much it can produce. Resources, such as land, labor, and capital, provide the inputs needed for production. Technology improves efficiency, allowing for more output with the same amount of resources. Limited resources and outdated technology restrict production, while advancements in both expand the country’s potential output. This relationship directly impacts the position and shape of the production possibilities curve.
