Scarcity & PPFs

Question 1

Economics

Answer 1

• uses scientific methods to make generalisations to develop theories
• theories are applied to fix problems or meet economic goals
• ceteris paribus = assumption that other things are being held equal/constant, so nothing else changes
• wants are unlimited but resources are finite, so choices have to be made which result in an ‘opportunity cost’
• opportunity cost = value of the next best alternative forgone

Question 2

Positive & Normative statements

Answer 2

• positive statements are based on facts and avoid judgement (objective)
• ^ these statements can be tested and results can be examined
• normative statements include opinions and value judgement (subjective)

Question 3

Factors of Production aka ‘Economic Resources’ (CELL)

Answer 3

• effective production = firms maximising profits whilst minimising cost
  Capital
• man-made aids to production
  e.g. machinery, factories, schools, hospitals
  Enterprise
• risk takers (entrepreneur) who innovate to produce goods/services for profit
  Land
• areas where raw materials can be extracted to produce a good
  Labour
• workforce of the economy (jobs)

Question 4

Production Possibility Frontiers

Answer 4

• depict maximum productive potential & economic growth/decline of an economy
• uses a combination of two goods when resources are efficiently employed
• inefficient points = resources not being used to their full productive potential
• points outside curve = not attainable

Question 5

Production Possibility Frontiers 2

Answer 5

• short-run growth = becoming efficient
• long-run growth = outward shift in PPF
• ^ due to an increase in quantity/quality of resources used
• original PPF curve assumes a fixed amount of resources are being used
• an outward PPF shift can favour a good

Question 6

Production Possibility Frontier 3

Answer 6

• consumer goods cannot be used to produce other goods
• opp. cost increases per output if a good doesn’t have interchangeable resources
• concave PPFs shows the ‘Law of Increasing Opportunity Cost’
• PPFs do not show allocative efficiency (how goods are distributed in society)