MICRO 2

Question 1

What are the 4 factors of production?

Answer 1

Capital - these are physical, man-made resources. Eg. factories and machinery.
Enterprise - the person who organises the business and takes the risk of investing their resource into the act of production.
Land - the naturally occurring resources used in production.
Labour - the physical and mental effort of the people who make the good or service.

Question 2

What are the 4 factor payments?

Answer 2

Interest
Profit
Rent
Wage
(Also known as national income)

Question 3

What is the difference between economic goods and free goods?

Answer 3

Economic goods are scarce and have an opportunity cost (eg. wood)
Free goods have no opportunity cost and are abundant (eg. water)

Question 4

What are production possibility diagrams?

Answer 4

Diagrams that show all production options of a firm. With the PPF (production possibility frontier) showing the optimal production options

Question 5

What does the curvature of a PPF show?

Answer 5

Increase in opportunity cost

A straight line shows constant opportunity cost. A curved line shows increasing opportunity cost.

Question 6

What is marginal cost?

Answer 6

The cost to increase the production of 1 good by 1. (Opportunity cost of 1 unit)

Question 7

What is productive efficiency?

Answer 7

A situation in which a producer or economy is making full use of the resources available. Producing any more of one good or service must mean producing less of another good or service. It is impossible to squeeze any more from the factors of production currently available.

Question 8

How would an increase in the quantity of factors of production affect a PPF?

Answer 8

The PPF would shift outwards, having the possibility of producing more products.

Question 9

What is opportunity cost?

Answer 9

The cost of the next best alternative that if foregone.