Unit 2 The Economic Problem Flashcards
What is the economic problem?
How to deal with scarcity
What is the purpose of a production possibilities frontier?
Demonstrate how an economy or key decision makers within an economy deal with scarcity of resources.
Is the PPF positive or normative?
Positive
Defines production possibilities frontier
Shows the maximum combinations of two goods or services that can be produced if all resources are fully utilized given current technology and the quantity of resources available.
Producing the best combination in the ppf indicates
Allocative efficiency
What does a linear ppf denite
A constant opportunity cost
How is opportunity cost calculated
The slope of the ppf. Rise/run
What does increasing opportunity cost mean?
Resources are not equally productive.
What does a concave or bowed out shape in the ppf denote?
Increasing opportunity cost
What does the steeper the slope of the ppf mean?
The higher opportunity cost
What is a trade off
The idea that because of scarcity, producing more of one good or service means producing less of another good or service
How does economic growth help us?
It allows us to increase our production and ultimately consumption possibilities making us better off economically.
