Scarcity, Choice And Opportunity Cost

Question 1

Scarcity

Answer 1

Refers to the situation where the limited resources available are unable to satisfy unlimited wants

Question 2

Choice

Answer 2

Because resources are scarce, they have alternative uses. Therefore, individuals and societies must make choices among the alternative uses so as to maximize the use of resources to highest possible level of satisfaction

Question 3

Opportunity cost

Answer 3

Measures the cost of making a choice, in terms of the next best alternative forgone

Question 4

Law of increasing opportunity cost

Answer 4

States that as more of a particular good is produced, larger and larger quantities of the alternative good must be sacrificed

Question 5

Production possibility curve (PPC)

Answer 5

shows all the different maximum attainable combinations of goods and services that can be produced in an economy, when all available resources are fully and efficiently used given the state of technology

Question 6

Economic growth

Answer 6

Is defined as the expansion/increase in an economy’s level of output or Gross Domestic Product (GDP) over time

Question 7

What are examples of scarce resources?

Answer 7

Land, labour, capital, entrepreneurship

Question 8

What are unlimited wants?

Answer 8

A desire for ever higher levels of consumption. When old wants are satisfied, new wants are created

Question 9

What are the 2 main microeconomic aims?

Answer 9

Efficiency and equity

Question 10

What are the 3 basic questions in resource allocation?

Answer 10

1. What and how much to produce
2. How to produce
3. For whom to produce

Question 11

What is productive efficiency?

Answer 11

Absence of waste in the production process

Question 12

How does the PPC illustrate productive efficiency?

Answer 12

All points in the PPC are productive efficient. Points inside the PPC are inefficient, representing either unemployment of underemployment

Question 13

What is allocative efficiency?

Answer 13

Maximum welfare for society