Topic 1 - The Economic Problem Micro Flashcards
Basic economic problem
Humans have unlimited wants but there are a scarce amount of resources to provide the goods and services that fulfil these wants
Renewable resource
A resource is renewable if it can be replenished and will not run out. For example: Water, Wind, Solar energy
Non-renewable resource
If its supply is finite, it will run out. For example: Oil, Natural gas, Coal
Opportunity cost
The cost of choosing a good or service in terms of the next best alternative forgone
PPF ⚙️
Shows all the possible combinations of two or more goods that can be produced when all resources are used efficiently
(Production Possibility Frontier)
Why is a PPF diagram curved?
To represent increasing opportunity cost with increased output of a good
Outward shift in PPF
Outward shift can happen when:
1. Increased quantity of factors of production
2. Increased quality of factors of production
- Anything that creates more resources OR allows them to be used more effeciently
Inward shift in PPF
Inward shift can happen when:
War
Natural disasters (Earthquakes and flooding)
Migrant workers returning home
Delayed entry into the labour market by students
- Anything that means there are less resources OR resources used less efficiently
What are positive statements?
Positive statements are objective statements. They can be tested, amended or rejected by referring to the available evidence. For example:
“Rates of lung cancer will decrease if smoking is banned”
“The price of oil more than tripled between 2004 and 2008”
“In 2009 the poorer countries of the world recieved less than their fair share of world income”
What are Normative statements?
Normative statements are value judgements. They cannot be tested and are subjective rather than being based on fact. For example:
“Smoking is anti-social and should be discouraged”
“The UK Government ought to introduce policies to reduce the unemployment rate”
Ought = Subjective viewpoint
Use term “Value judgement” NEVER OPINION
