PPF and opportunity costs

Question 1

what are the four factors of production?

Answer 1

• Land
• Labour
• Capital
• Enterprise

Question 2

Define land in the context of economic resources.

Answer 2

Land is broadly defined as ‘all that nature provides’, including land, water, air, and resources like timber, fish, and oxygen.

Question 3

What is the factor income associated with land?

Answer 3

RENT

Question 4

What does labour (human capital) encompass?

Answer 4

The value of human skill and physical effort of people.

Question 5

What is the factor income for labour?

Answer 5

WAGES

Question 6

what does capital include in the production process?

Answer 6

• Man-made goods
• Machinery and equipment
• Stocks of processed goods (e.g. petrol)

Question 7

What is the factor income associated with capital?

Answer 7

INTEREST

Question 8

What role does enterprise play in the production process?

Answer 8

• Combining factors efficiently
• Taking risks associated with potential losses

Question 9

What is the factor income for enterprise?

Answer 9

PROFIT

Question 10

What is meant by ‘free’ resources in economics?

Answer 10

Resources that are in unlimited supply and have no opportunity cost to society.

Question 11

What is the basic economic problem?

Answer 11

Resources are finite but human wants are infinite.

Question 12

What is the difference between wants and needs?

Answer 12

• Want: Something desirable but not essential
• Need: Something essential for a satisfactory life

Question 13

Define opportunity cost.

Answer 13

Opportunity cost measures the value of the next best alternative use of resources.

Question 14

What is the difference between consumption and investment?

Answer 14

• Consumption: Satisfies wants and needs now
• Investment: Capital goods that increase future productive capacity

Question 15

What do consumer goods provide?

Answer 15

Satisfy wants and needs now, such as clothes or a new car.

Question 16

What are capital goods valued for?

Answer 16

They help produce items in the future and increase future productive capacity.

Question 17

What happens if more capital goods are produced?

Answer 17

Living standards will be lower at present, but future production will increase.

Question 18

What does the PPF show about production efficiency?

Answer 18

Production is efficient if the economy is producing on the boundary of the PPF.

Question 19

What indicates an impossible production point on the PPF?

Answer 19

Any point outside the PPF.

Question 20

What factors can shift the PPF to the right?

Answer 20

• Improvements in productivity and efficiency
• Better management of resources
• Increase in factors of production
• Discovery of new natural resources
• Innovation and technological advances

Question 21

What does the PPF illustrate in terms of trade-offs?

Answer 21

It shows the maximum possible output combinations of two goods/services using available resources efficiently.

Question 22

Fill in the blank: The reward for land is _______.

Answer 22

RENT

Question 23

Fill in the blank: The reward for labour is _______.

Answer 23

WAGES

Question 24

Fill in the blank: The reward for capital is _______.

Answer 24

INTEREST

Question 25

Fill in the blank: The reward for enterprise is _______.

Answer 25

PROFIT