Microeconomics: economic methodology and the economic problem Flashcards
What are the economic groups?
Consumer
Producer
Government
what is the difference between a good and a service?
A good is a tangible product e.g. kit while a service is an intangible product e.g. bin service.
what is the definition of interdepend?
One group responds to the actions of another group so they are mutually reliant on each other.
What is the economic problem?
The problem of allocation of scarce resources to infinite wants and needs.
What is the difference between a need and want?
A need is something essential for survival e.g. food while a want is a desire and is not necessary for survival e.g. car
What are the factors of production?
Capital e.g. buildings
Enterprise e.g. business owners
Labor e.g. banker
Land e.g. coal
What does opportunity cost mean?
The next best alternative foregone when making an economic decision.
e.g. If I buy a Lucozade, I would have to give up a bottle of coke.
What does the production possibility frontier show?
The maximum level of production in an economy and the possible output potential given the current factor inputs available at a given time.
How is opportunity cost calculated?
Lost output of good / gained output of good
Why may the PPF shift outwards?
An increase in natural resources e.g. if a country discovers new oil, it can increase its production capacity.
Technological advancements- allows an economy to produce more output with the same resources.
Human capital development- better educated and more skilled workers increases productivity.
Investment in capital e.g. machinery, technology can enhance an economy’s productive capacity.
What is productive efficiency?
When an economy is producing goods and services at the lowest possible cost, given its existing technology and resources.
POINTS INSIDE THE CURVE INDICATES UNDERUTILISATION OF RESOURCES.
What is allocative efficiency?
When an economy is producing a mix of goods and services that best aligns with consumer preferences and social needs.
PPF- ACHIEVED WHEN THE ECONOMY IS PRODUCING AT A POINT THAT MATCHES SOCIETY’S PREFERENCES.
What is dynamic efficiency?
Economy’s ability to grow and expand its production possibilities over time. Involves shifting the PPF outward through technological advancements, investments, and innovations.
AN OUTWARD SHIFT INDICATES THE ECONOMY HAS ACHIEVED DYNAMIC EFFICIENCY ALLOWING IT TO PRODUCE MORE GOODS AND SERVICES WITH THE SAME RESOURCES.
What is the meaning of production?
Total output of a good (volume)
What is the meaning of productivity?
Output per unit per period of time (efficiency)
