Topic 1: The nature of economics Flashcards
What is the economic problem?
Unlimited wants - limited resources
What is the need for choice by individuals and society?
They need to choose between their wants because not all of them will be satisfied.
What is Opportunity Cost?
It represents the alternative cost - the cost of satisfying one want over another.
What is the Production Possibility Frontier (PPF)?
It is a graphical representation of all the possible combinations of the production of G or S that the economy can produce at any given time.
What will happen to the PPF if new technology is introduced into the production process?
Newer technology allows for more efficient production, meaning that more of the same G can be produced at the same amount of resources.
What is the impact on the PPF if there is a discovery of new resources?
The Discovery of new resources increases the availability of prod’n inputs. Production of both goods will increase, pushing the PPF outward.
What happens to the PPF if all the available resources for production are not employed?
The frontier itself doesn’t change, but we would change position in relation to it - we would be somewhere within/under the PPF.
Why are most PPFs concave?
In reality, the available resources will not equally be suited to produce both G or S. Therefore, as we move more up or down the frontier, the production of said G or S will become less productive.
What are consumer G & S?
Consumer G & S are items produced for the immediate satisfaction for the needs and wants of an individual and community.
What are capital goods?
Capital goods are items that have not been mad for immediate consumption but will be used for the production of other goods.
Future implications of current choices by individuals:
Individuals sometimes have to give up immediate wants to prepare for a want they have in the long-run.
eg. making many sacrifices for a deposit and paying off mortgage but in the long run, they would have improved financial security, no rent, and an asset to pass of to their children after they die.
Future implications of current choices by businesses:
Businesses must choose to focus on one area of business over another due to limited resources. They must choose a specific area/product that is likely to maximize profit.
If businesses choose to operate in an area where other businesses have already succeeded, they may find out that they have entered to mkt too late and will have a competitive disadvantage.
Future implication of current choices by governments:
Gov’ts make very important long-term implications for the entire economy. The difficulty for gov’ts is that in the short term, it may be more politically popular to satisfy immediate wants rather than planning for future needs.
Economic factors underlying decision-making by individuals:
age, income, expectations, future plans, family circumstances, and personality. Individuals must choose how much of their income they want to spend or save.
Economic factors underlying decision-making by businesses:
pricing, production, resource use, and industrial relations. Businesses must choose a target audience, how they want to determine employee wage, and how to achieve minimum cost for maximum profit.
