The Economic Problem Flashcards
Definition of goods?
Things that are produced in order to be sold
Definition of finite?
Having an end or a limit
Needs definition?
Basic human requirements for survival
Wants definition?
Peoples desires for goods and services
Infinite definition?
Without limits
What is the basic economic problem?
Because the world’s recourses are scarce or finite and people’s wants are infinite, the demand for resources is greater than supply. Decisions have to be made about how to allocate scarce recourses and what to produce
What decisions have to be made to overcome the basic economic problem?
What to produce, how to produce, and for who to produce (distribution).
What is opportunity cost?
Cost of the next best alternative given up while making a choice
What is a capital good?
Those purchased by firms to produce more goods, like machines, tools or equipment
What is a consumer good?
Those purchased by households, like food, cars, tablets
What does the PPC show?
Shows the different combination of two goods in an economy if all recourses are used up
What does point B on the PPC show?
Combination of 14 million units consumer goods and 4 million units of capital goods can be produced
What does point E on the PPC show?
It shows the combination of goods is not possible, because it is outside the curve. The country does not have the recourses to produce 7 mill capital goods and 12 mill consumer goods.
What does point F on the PPC show?
It shows the combination can be produced, but not all recourses are being used in the country. Country should aim to push production so it’s on the PPC.
What happens if a country produces more capital than consumer goods?
In the future they will probably be able to produce more consumer goods, however in the short term people will have less
What happens to the PPC when countries produce more?
It shifts outwards.
