Micro: Economic Methodology and the Economic problem

Question 1

What is the basic economic problem?

Answer 1

There are unlimited wants but limited resources

Question 2

Nam the 4 factors of production?

Answer 2

Land
Capital
Labour
Enterprise

Question 3

Name the three economic agents?

Answer 3

Producers - people/firms that produce goods or supply services.
Consumers - people/firms who purchase the goods/services.
Governments - establishes rules for economies.

Question 4

What is a trade-off? What is opportunity cost?

Answer 4

Trade-Off= Deciding between two things

Opportunity Cost= The Value of the next best thing

Question 5

What is on the axis of a PPF?

Answer 5

Good X and Good Y

Question 6

What does it mean when there is a point outside the PPF?

Answer 6

It isn’t possible to produce at that point

Question 7

What does it mean when there is a point inside the PPF?

Answer 7

That there are some resources being underemployed

Question 8

What does it mean to be productively efficient on the PPF?

Answer 8

It means that it is impossible to produce more of one good without decreasing the amount of another good.

Question 9

What does it mean to be allocatively efficient?

Answer 9

This occurs when a specific combination of goods is efficient for society.
As this is a specific combination of goods, it refers to a point on the PPF, not the entire curve.
So, not every point on the PPF is allocatively efficient.

Question 10

What factors cause a shift on the PPF?

Answer 10

1. When there is an increase in the Quantity and Quality of Resources
2. Improvement in technology