Micro 2 - factors of production and ppf diagram Flashcards
What are the four factors of production? How are they defined?
Capital - man made resources
Enterprise- person who organises business
Land - naturally occurring resources
Labour - physical or mental effort
What are factor payments?
Factor payments are the way in which factors of production are paid for.
What are the factor payments for the factors of production?
Land - rent
Capital - interest payments
Labour - wages
Enterprise- profit
What is the difference between economic goods and free goods?
Economic goods are scarce so they have opportunity cost when used. Free goods are in abundance therefore have no opportunity cost.
What is a ppf diagram used for?
A production possibility diagram is used to show the maximum quantity of two goods that a producer can produce over a given time
What is productive efficiency?
When a producer is making full use of the resources available. Producing more means producing less of another good as there is a certain amount of factors of production available.
When are the goods produced being productively efficient (on a ppf)?
Anywhere on the line, it is impossible to go past it
What happens to the ppf when more factors of production are discovered?
The ppf shifts outwards as it will likely lead to more capacity
Why are curved ppfs common?
The relationship between two goods aren’t always linear as different skills/resources are needed for different products
