Scarcity, Choice and Opportunity Cost

Question 1

What is scarcity?

Answer 1

When something is limited in supply and in demand, it is scarce. A function of both demand and supply. The greater the demand is relative to supply, the scarcer something is. The more scarce something is, the more valuable it is.

Question 2

What is equity vs efficiency?

Answer 2

Equity= fairness
Efficiency= requires that resources go towards their most socially optimal use
What is most efficient may not be equitable.

Question 3

Explain the problem which economics attempts to overcome, scarcity.

Answer 3

Available resources or factors are finite whereas wants are infinite. Not enough resources to produce everything humans want and need. Study of choices, to determine the best possible use of resources to satisfy these needs and wants.

Question 4

What are the factors of production?

Answer 4

Land (natural resources), labour (all forms of human input), capital (physical capital, manmade factor of production), entrepreneurship (management, ability to innovate).

Question 5

What are the generalisations we are able to make?

Answer 5

1. Choosing is refusing
2. People’s values differ
3. People can’t escape opportunity costs

Question 6

Define ‘alternative’

Answer 6

Choices or courses of action which might be taken in a given situation.

Question 7

Define ‘choice’

Answer 7

Decision made when faced with a set of alternatives.

Question 8

Define ‘trade-off/sacrafice’

Answer 8

Giving up of one benefit/advantage to gain another regarded as more favourable.

Question 9

What is opportunity cost in the Production Possibilites Model?

Answer 9

The trade-off we face between the use of our scarce resources. Basic model is used to illustrate the economic challenges faced by individuals, firms, states, countries or the world.

Question 10

Define ‘actual output’

Answer 10

Shown by where a country is currently producing on/within the PPC.