Scarcity, Central Economic Problem 1A Flashcards
Why does scarcity occur?
Scarcity arises as human wants are unlimited but resources available to satisfy those wants are limited
What are the 4 resources/factors of production?
CELL
1. Land
[All natural resources available]
- Labour
[Human effort, 1 who is willing & able to work] - Capital
[Man-made resources used for further production] - Enterprise/Entrepreneurship
[Human resources who take risks and innovate]
What are the 3 fundamental choices for society to make for production?
What to produce
How to produce
For whom to produce
What is opportunity cost?
It is the value of the next best alternative forgone
What are the aims of each economic agent?
Consumers:
Maximise utility/satisfaction
Firms:
Maximise profits
Governments:
Maximise societal welfare
How is opp. cost represented on PPC
Negative slope of PPC
What is the law of increasing opportunity cost? How is it represented on PPC?
Law of Increasing Opportunity Cost:
Represented by concave PPC
As society takes more resources from 1 good away, and applies them to another good, the opportunity cost of each ADDITIONAL unit of the first good increases
INCREASINGLY less suitable
Resources are not EQUALLY ADAPTABLE to alternative uses, (imperfect substitutes)
Whats a PPC
Shows combination of 2 goods x & y that can be produced by an economy,
Within a specific time period & w fixed qty resources assuming full efficient utilisation given current state of tech
What causes movement within the PPC?
Moving away from curve:
- Unemployment, unable to achieve max. output of goods & services
Moving towards the curve:
- As society eliminates unemployment, Actual economic growth occurs, leading to higher output, higher SOL
On curve:
All resources are fully employed, productive efficiency is achieved
ONLY 1 pt on curve is allocative efficient for society’s needs
What causes Outward shift in PPC?
- Increase in quantity/quality of resources
- Improvement in state of technology
-> Allows for economy to produce a previously unobtainable output combination,
- Increase in productive capacity
Achieving potential economic growth
eg. myskillsfuture, technological advancement etc.
What causes inward shift in PPC?
- Decrease in quantity/quality of resources
- Decrease in state of technology
-> Maximum amount of good economy can produce decreases
- Decrease in productive capacity
- Negative potential economic growth
eg. natural disasters, destroy land, capital etc.
Trade-off for higher capital goods?
Increase production in capital goods adds to society’s stock [Capital accumulation]
- Devotes less resources to consumer goods in the present -> Lower SOL for citizens in present
- However, greater potential growth & higher future SOL
Opp. cost is benefits that could have been gained from the consumer goods forgone
What is a positive statement?
Statement of fact + data
What is a normative statement
Statement that expresses opinion or value judgement
