UNIT 3 AOS 1 - part 1

Question 1

Relative scarcity

def

Answer 1

• unlimited needs and wants but only limited resources
• onsumers act in Self-interest
• Uimted vs limited

Question 2

opportunity cost + Trade off

def

Answer 2

• the lost of value of the next best alternative when another alternative is taken
• tf: all other opportunities forgone with a choice Is made.

Question 3

production possibility frontier (PPF) model

def + all effieicies

Answer 3

Tool to illustrate the tension that exists in producing certain products/services.
* Comparative advantage
* tension between 2 products
* model the opportunity cost.
* Every time S meets D = allocative efficiency

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Allocative effiency
* best combination of needs and wants
* satisfied LIVING STANDARDS
* one point on PPF
* max out per in

====
Technical effiency
* ↓ COP + ↓ waste + max out for given in
* all points on PPF
* WITHOUT COMPROSMING QUALITY

====
Dynamic effiency
* speed at which firms can relocate recourses to meet demand
* (changing conditions in supply and demand)

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Intertemporal effiency
* balancing allocation of resources between different time periods
* producing at point F without increasing capacity may be bad for future generations

Question 4

3 basic eco question

Answer 4

1. What SO THAT AE CAN BE ACHIVED
   - What and how MUCH to produce
   - QD = QS, the equilibrium
   Where scares resources being directed?
   = relative prices
   = send singals
2. How
   - produce at cheap rate without losing quality
   - __combination__ of __labour/machinery__ to produce the g/s
   To keep LOW COP
   = TE enables this
3. Whom
   In market economy = pay will receive the profit

because of relative scarcity we need to think about how things are going to be produced

Question 5

Underutilization + Unattainable

Answer 5

Underutilization
* ↑ COP
* ↑ waste
* poor use of resources
* may cause unemployment

Unattainable
* cannot reach with current production (unless shift the curve)
* if reached (inflation)

A shift in the PPF (shift to point F) occurs when: increase their productive capacity (think AS)
* Education and training for workers
* New tech
* Discovery of new resources
* Expand by: increase quantity or quality of resources
* improve Resources (land, labour, capital)
○ land - tech to improve, discovery
○ labour - natural birth rate, participation rate, immigration!!
○ capital - tech, investment

Question 6

perfectly competitive market

characteristics

Answer 6

• large numbers of buyers and sellers -> price taker (prices by supply and demand) -> allocative efficiency
• firms sell homogenous products -> all products identical -> compete on price = firms try to ↑ TE by adapting low COP = ↓ COP,
  ↓ waste = ↑ TE = ↓ prices = ↑AE
• no barriers to enter/exit ->can respond to changing market conditions -> dynamic efficiency
• perfectly information -> informed -> rational decision making -> allocative efficiency

others:
* act in self-interest
* ↑ competition
* ↑ consumer sovereignty
* consumers - price makers
* producers - price takers

Question 7

Demand

DEF + factor

Answer 7

There is an inverse (negative) relationship between: the price of a good; and the quantity consumers are willing to buy. that is as….

===
Change in consumer tastes and preferences
* Goods/Services become more/less trendy
* ↑ spending from external factor = ↑ C+ I = Increases demand

==

Question 8

Supply

def + factors

Answer 8

There is a positive and direct relationship between: the price of a good; and the quantity sellers are willing to supply. that is as….

===
Change in productivity
* Productivity is the output of a firm based on its inputs
* ↑ productivity =↓ cost of production (cost per unit) = <↓cost inflation> = ↑production of profit orinited firms

Change in Cost of production
* business spend on natural, labour and capital on goods and services
* ↓ cost of production (cost per unit) = <↓cost inflation> = ↑production of profit orinited firms = shift supply to right

Question 9

Dominos for equilibrium

+ DEF!!

Answer 9

• • QD = QS
• • no shortages/surpluses
• • market clears

0. QD/QS has decreased/increased at all price points
1. impact
2. shift
3. At original price, D > S or S > D (Shortage or excess )
4. Change in Price (up/down pressure)
5. contraction/expansion - (for supply and demand curves)
6. new equilibrium
7. Shortage/surplus is eliminated and the market clears

Question 10

Answer to RP question

def + domino

Answer 10

Price of a good or service relative to another good or service within an economy

1. def relative prices
2. S/D factor to illusrate price movement
3. SHIFT/PRICE
4. chnge in RP = singles (to profit orinited firms)
5. reallocation of resources (overtime)
   - firms would improve TE/DE qwuickly to reallocate resources
   * ↑production (or down)
   * ↑ access to g+s
   * ↑ allocative efficiency