TOPIC 1: CENTRAL ECONOMIC PROBLEM

Question 1

[Definition] Scarcity

Answer 1

Scarcity refers to a situation where limited resources are insufficient to fulfill the unlimited wants and needs of society.

Question 2

[Definition] Opportunity Cost

Answer 2

Opportunity cost is defined as the value of the next best alternative forgone.

Question 3

[Definition] The PPC Curve

Answer 3

The Production Possibilites Curve (PPC) is a curve that shows all the possible combinations of the maximum quantity of two goods that a country can produce within a specified period of time with all its resources fully and efficiently employed at a given state of technology.

Question 4

[Definition] Productive Efficiency

Answer 4

Productive efficiency refers to a situation where the economy is able to produce the maximum ouput for a given amount of inputs.

*All points on the PPC are productive efficient

Question 5

[Definition] Allocative Efficiency

Answer 5

Allocative efficiency is achieved when society produces and consumes the optimal/right mix of goods and services that maximises its welfare.

*Can only have 1 combination of goods and services on the PPC that is allocative efficient

Question 6

[Definition] Actual Economic Growth

Answer 6

Actual economic growth refers to the annual percentage increase in real national output actually produced.

Question 7

[Definition] Potential Economic Growth

Answer 7

Potential economic growth is defined as an increase in the productive capacity of an economy to produce more goods and services.