Micro unit 1 Flashcards
Scarcity
the idea that resources are limited
physical resources: land, water, oil
or intangible: time, attention, skills
4 Factors of Production
AKA Resources…
1. Land- all natural resources
2. Capital- manufactured aids to production (tools, machines, factories, tech, trucks) NOT money
3. Labor
4. Entrepreneurial Ability (enterprise)
Rival vs Nonrival resources
Nonrival resources: can be used by someone WITHOUT affecting someone else’s use
Ex: Solar power
Rival resources: one person using it limits the ability of others to use it
Ex: food, clothing, car
Command vs market economy
command: government determines what is produced
market: individuals (buyers and sellers) determine what is produced BASED ON laws of supply-demand
Opportunity cost
the amount of other products that must be sacrificed to produce ONE unit of a product
-must sacrifice some of product X to get MORE of product Y
Product possibilities table
Possible combinations of product X and product Y at any point in time of FULL employment/production
Production possibilities curve
Production possibilities table on a graph (full employment/production)
-producing outside the curve in UNATTAINABLE
-producing inside the curve is attainable but undesirable… this means unemployment of resources
what does unemployment of resources mean?
there are still available resources that are not in the production system
law of increasing opportunity costs
Each additional unit produced comes at the expense of another product you could be making with those same workers and financial resources
optimal allocation
when will optimal output occur
when marginal cost = marginal benefit
benefit declines as cost increases
how will the growth of economic capacity be depicted?
as an outward shift in PPF (production possibility)
because…
increases in resources/tech enable a PPF to shift outward
What happens to an economy favoring capital goods?
economy will grow more in the future compared to an alternative favoring consumer goods
Comparative advantage
A nation has when they can produce a product at a LOWER domestic opportunity cost than a trading partner
Specialization based on comparative advantage improves global resource allocation ( make more goods available to an economy)
Absolute advantage
Who makes it better? More in less time
-can have AA in more than one thing
When it can produce MORE of a good with SAME quantity of resources* as another producer
