Unit 1: Introduction To Economics Flashcards
Difference between microeconomic vs macro economics
Micro - focuses on the individual participants in the economy (producers, workers, employers)
Macro - is concerned with the economy as a whole and focuses on as aspects such as economic growth, the stability of the general price level, the distribution of income, government spending and nation money supply
Distinguish between wants, needs and demand
Wants - are our desires for goods and services and are unlimited
Needs - are necessities for survival
Demand - for there to be a demand for a good or service, those who want to purchase it must have the necessary means to do so. They must have the purchasing power
Why is there a problem with scarcity?
Peoples unlimited wants cannot be met with limited resources.
Resources are used in the factors of production
Since the factors of production of goods are limited it follows that the goods and services which can be produced are also limited
As such choices need to be made
What are the factors of production?
Resources
Labour
Capital
Entrepreneurship
What is opportunity cost?
The opportunity cost of a choice is the VALUE to the decision maker of the best alternative that could have been chosen but was not chosen.
The opportunity cost of a choice is the VALUE of the best forgone opportunity.
What is economics?
Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people
Economics is the study of how society manages scarce resources.
What does a production possibilities curve display?
Scarcity, choice and opportunity cost.
The PPC is an illustration of the combination of any two goods or services that are attainable when a communities resources are fully and efficiently employed. In other words the maximum attainable combinations of those two goods.
What is the opportunity cost of increasing the production of laptops from 3000 to 4000 in terms of Mobile phones?
The opportunity cost is 8000
What does the negative slope on the PPC show?
The negative slope shows that more of one good can only be obtained by sacrificing the other good
Opportunity cost _______as we move along the PPF. This can be seen by paying attention to the ______ shape
Opportunity cost increases as we move along the PPF. This can be seen by paying attention to the concave shape.
Why do opportunity costs increase along the PPF curve. Give 5 reasons why.
- Because it’s difficult to move resources from one industry to another.
- Resources do not adapt easily
- Workers may not have the same skills across industries
- There are difficulties in transferring the FOP between industries - often referred to as the law of increasing opportunity cost.
- The mix of factors required to make a certain good is also a factor. One good may require a more capital intensive production process as opposed to the other.
What is the law of increasing opportunity cost?
The law states that ever increasing quantities of other goods and services need to be given up in order to get more of a particular good.
A
B
B
B
C
E - the statement in a and d are all statements of alleged fact. Statement E expresses a value of judgement and is consequently the only normative statement
What is point H?
In the event that the economy is operating at less than potential output this will be illustrates as a point inside the PPC. Some of the available resources are either unemployed or not employed efficiently.
What is point G
Point G is unattainable. Any point beyond AF is unattainable. With the given available resources and current production techniques, achieving a combination such as G or any combination outside of AF is impossible.
Draw a PPC illustrating improved technique for producing capital goods
Draw a PPC illustrating improved technique for producing consumer goods
Draw a PPC illustrating an increase in the quantity or productivity of available resources
