The Central Economic Problem

Question 1

What are microeconomics?

Answer 1

It is the study of the choices that individuals and business make, the way these choices interact and how the government can exert influence on them.

Question 2

What are macroeconomics?

Answer 2

It is the study of the performance of the national economy and the global economy.

Question 3

What are the factors of production?

Answer 3

• Land
• Labour
• Capital
• Entrepreneurship

Question 4

What is scarcity?

Answer 4

It is the condition in which our wants (for goods) are greater than the limited resources available to satisfy those wants.

Question 5

What is opportunity cost?

Answer 5

Opportunity cost is defined as the next best alternative foregone when an economic decision is made.

Question 6

What is the difference between human and physical capital?

Answer 6

Human capital refers to the quality of labour, physical capital refers to man-made resources

Question 7

What is the purpose of Production Possibility Frontier (PPF)?

Answer 7

It shows the maximum combinations of goods and services that can be produced by an economy in a given period if all resources are used efficiently and tech are up to date.

Question 8

What is the difference between increasing and constant opportunity cost?

Answer 8

Increasing opportunity cost:
As more of one good is produced, larger and larger quantities of the other good must be sacrificed.

Constant opportunity cost:
As more of one good is produced, the same quantities of the other good must be sacrificed.

Question 9

What does a Concave PPF mean?

Answer 9

It represents an Increasing opportunity cost.

Question 10

What does a straight line PPF mean?

Answer 10

It represents a Constant opportunity cost.

Question 11

How can the PFP shift outwards?

Answer 11

• Technological improvement
• Increase in resources