The Basic Economic Problem Flashcards
What is scarcity?
The concept that resources are limited in supply so that choices have to be made about their use.
What is Opportunity Cost?
The benefit lost from the next best alternative forgone.
What are Free Goods?
Goods which are unlimited in supply and therefore have no opportunity cost.
What are economic goods?
Goods which are limited in supply and therefore have an opportunity cost
The Basic Economic Problem
The choice that has to be made about how resource are allocated because needs and wants are unlimited whilst the resources to meet those needs and wants are limited
Needs
The minimum which is neccesary for survival- food, water, warmth, clothing and shelter.
Wants
Those resources we want but do not need to survive
Factors of Production
The inputs to the production process- land, labour, capital (machinery) and enterprise.
Positive Economic Statements
A statement of economic fact that can be tested right or wrong by the evidence.
Normative Economic Statements
An economic statement that contains a value judgement about what ought to to be (an opinion)
What does a PPF (Production Possibility Frontier) show?
The combinations of two or more goods and services that can be produced using all available factor resources efficiently.
What is Productive Efficiency?
- Producing output at the lowest possible average cost of production
- Maximising output from the available input (all points on the line do this)
What is Allocative Efficiency?
- when resources are being allocated to produce the goods and services that consumers want.
Why is the PPF curve drawn concave?
As resources are transferred from one good to another the most suitable resources will be transferred first. Once the most suitable resources have been transferred the second good will require resources less suited, so it requires more resources so curves as it continues to increase.
What would happen to the curves if there was an increase in all factor inputs?
A parallel shift outwards
