Week 3 - Increasing OC, Non-Optimal Combos

Question 1

Law of Increasing OC

Answer 1

• as an economy moves along its production possibilities curve in the direction of producing more of a particular good, the OC of additional units of that good will increase

Question 2

Allocative Efficiency

Answer 2

• a desirable situation where resources are used to produce particular types of g/s that best maximise the overall satisfaction of society’s both long/short-term wants/needs, wellbeing, or living standards

Question 3

Different types of economic efficiency

Answer 3

Productive/Technical - using the lowest cost production methods, and minimising wastage of resources in making g/s

Dynamic - when resources are allocated quickly to increase choice and meet the changing needs of consumers

Intertemporal - finding the optimal balance between current consumption or the spending of income vs saving income to finance investment and hence future consumption

Question 4

Three Basic Economic Questions

Answer 4

1. What should be produced
2. How should G/S be produced
3. For whom should G/S be produced

Question 5

1. What should be produced

Answer 5

• using scarce resources to produce one thing means giving up another
• every society must decide what it will produce with is scarce resources

Question 6

Consumer Sovereignty

Answer 6

• the controlling power of consumers vs holders of scarce resources
• final produces should be produced from these resources

Question 7

2. How should G/S be produced

Answer 7

• should a firm employ a few skilled or a lot of unskilled workers
• should it be produced overseas or inside own nation
• should they use new or recycled raw materials

Question 8

Productive Efficiency

Answer 8

• occurs when the optimal combination of inputs results in the max amount of input at minimal costs

Question 9

3. For whom should the G/S be produced

Answer 9

• a decision to have one person/group receives a g/s usually means it will not be available to someone else
• this decision is important

Question 10

First three Economic Goals

Answer 10

Economic Efficiency - making the most of resources without waste

Economic Freedom - being able to make choice about which g/s to produce/distribute –> allows entrepreneurs to take risks and make choice to start businesses

Economic Security - knowing that g/s will be available when needed –> having a safety net that protects individuals in a time of economic disaster

Question 11

Last two Economic Goals

Answer 11

Economic Equity - a fair distribution of wealth

Economic Growth/Innovation - using new ideas and ways of creating g/s leads to growth an a higher standard of living for all