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1 The Central Economic Problem Flashcards

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1
Q

What is the central economic problem?

A

Scarcity refers to a situation where limited resources are insufficient to fulfil the unlimited wants and needs of society.

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2
Q

What are the four factors of production (FOPs)?

A
  • Land
  • Labour
  • Capital
  • Entrepreneurship
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3
Q

What is defined as the value of the next best alternative forgone?

A

Opportunity cost.

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4
Q

What does a free-market economy allow consumers and producers to do?

A

Make decisions relating to consumption and production patterns.

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5
Q

What is the price mechanism?

A

The interaction between buyers and sellers to determine the allocation of limited resources between competing uses.

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6
Q

What rewards do owners of factors of production receive?

A
  • Land: Rent
  • Labour: Wage
  • Capital: Interest
  • Entrepreneurship: Profit
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7
Q

What does the Production Possibility Curve (PPC) illustrate?

A

Scarcity, choice, and opportunity cost.

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8
Q

What are the assumptions of the Production Possibility Curve (PPC)?

A
  • All resources are used to produce only two goods
  • Quantity and quality of resources remain the same
  • Resources are fully and efficiently employed
  • Level of technology remains the same
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9
Q

What happens at point G on the PPC?

A

It represents an outcome that cannot be attained given available resources and existing technology.

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10
Q

What does point H on the PPC represent?

A

Inefficient allocation of resources.

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11
Q

Fill in the blank: Unlimited wants and _______ resources are the central economic problem.

A

[limited]

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12
Q

True or False: The opportunity cost of attending university is the sum of all alternatives foregone.

A

False.

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13
Q

What influences human behavior in economics?

A

Factors that shape society and decision-making processes.

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14
Q

What is microeconomics?

A

The study of economic behaviour of individual economic agents in making decisions regarding the allocation of limited resources.

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15
Q

What is macroeconomics?

A

The study of the economy as a whole, examining aggregate impacts of collective decisions.

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16
Q

Fill in the blank: The owner of land is rewarded with _______.

A

[rent]

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17
Q

What is the relationship between microeconomics and macroeconomics?

A

They are interdependent; changes in macroeconomy affect individual agents and vice versa.

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18
Q

What is the role of entrepreneurship in the production process?

A

To take overall responsibility for decision-making and combine the other three resources for production.

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19
Q

What are the essential questions in economics regarding choices?

A
  • Why do consumers, producers, and government make choices?
  • How do they make choices about the use of limited resources?
  • How does the free market allocate resources?
  • Why are some outcomes not efficient?
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20
Q

What does the term ‘Invisible Hand’ refer to?

A

The theory by Adam Smith that transactions lead to maximization of mutual self-interests.

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21
Q

Fill in the blank: The factors of production can be remembered using the acronym _______.

A

[CELL]

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22
Q

What is the implication of scarcity on resource allocation?

A

Resources must be allocated efficiently to meet the country’s objectives.

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23
Q

What do increasing opportunity costs indicate on the PPC?

A

As more of one good is produced, the amount of the other good that must be given up increases.

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24
Q

What does the PPC illustrate regarding the Central Economic Problem?

A

The PPC illustrates three concepts: scarcity, choice, and opportunity cost.

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25
How is scarcity represented on the PPC?
Scarcity is indicated by unattainable combinations beyond the PPC.
26
What does choice on the PPC indicate?
Choice indicates the need to select among alternative attainable combinations along the PPC.
27
What does point E on the PPC signify?
Point E signifies a higher priority on capital goods for future production.
28
What does point B on the PPC indicate?
Point B indicates a greater focus on immediate consumer needs.
29
What does the downward sloping PPC reflect?
The downward sloping PPC reflects opportunity cost.
30
What is the opportunity cost of the 1st unit of capital good?
The opportunity cost of the 1st unit of capital good is 1 unit of consumer good.
31
What happens to opportunity cost as more capital goods are produced?
Opportunity cost increases as more capital goods are produced.
32
What does productive efficiency refer to?
Productive efficiency refers to producing maximum output for a given amount of inputs.
33
What is allocative efficiency?
Allocative efficiency is when society produces the optimal mix of goods and services that maximizes welfare.
34
What is actual economic growth?
Actual economic growth refers to the annual percentage increase in real national output.
35
What is potential economic growth?
Potential economic growth is an increase in the productive capacity of an economy.
36
What leads to actual economic growth?
Actual growth occurs when idle resources are utilized, moving the economy closer to the PPC.
37
What factors can lead to potential economic growth?
Factors include increase in quantity and quality of factors of production, and innovation efforts.
38
How does technological improvement affect the PPC?
Technological improvement can lead to a pivoted shift of the PPC, enhancing production of specific goods.
39
What illustrates the trade-off between current and future standard of living?
The trade-off is illustrated through the PPC showing choices between current consumption and future investment.
40
What do economic agents aim to maximize?
Economic agents aim to maximize utility, profits, and social welfare.
41
What constraints do economic agents recognize?
Economic agents recognize budget, resource, and time constraints.
42
What is a marginalist approach?
A marginalist approach weighs benefits and costs to decide on actions.
43
What defines direct costs in economic decisions?
Direct costs are payments made for resources, like rent or wages.
44
What are opportunity costs?
Opportunity costs are the value of the next best alternative forgone.
45
What are Marginal Private Benefits (MPB)?
MPB refers to the additional satisfaction gained from consuming one more unit of a good.
46
What is Marginal Social Cost (MSC)?
MSC is the total cost to society of producing one more unit of a good.
47
What is Marginal Social Benefit (MSB)?
The benefit from the government's perspective.
48
What does Marginal Private Cost (MPC) refer to?
The cost from the consumer’s perspective.
49
What is Marginal Cost of production (MC)?
The cost from the producer’s perspective.
50
What is Marginal Social Cost (MSC)?
The cost from the government’s perspective.
51
When should an economic agent take an action?
If and only if Benefits > Costs.
52
What is the net benefit of opening a new branch if the revenue is $10 million and the cost is $2 million?
$8 million.
53
What decision is made if the net benefit of a nationwide sale is -$0.4 million?
Do not proceed since Benefits < Costs.
54
What is the estimated social benefit of building a school?
$10 billion.
55
What are the intended benefits of building a hospital?
Increases healthcare services capacity, resulting in a healthier workforce and higher national output.
56
What is the estimated social cost of farming crops?
$3 billion.
57
What option does a rational government choose when they can only select one?
The option that gives the highest net marginal benefit.
58
What does the Marginalist principle involve?
Weighing Marginal Benefit (MB) against Marginal Cost (MC).
59
At what point should you stop consuming additional plates of sushi?
When MB < MC.
60
What is the outcome of consuming up to 6 plates of sushi?
MB = MC.
61
What is the aim of consumers, producers, and governments according to the Marginalist principle?
* Consumers aim to maximise utility (satisfaction) * Producers aim to maximise profits * Governments aim to maximise social welfare.
62
What factors do economic agents consider when making decisions?
All available information, quantitative and qualitative.
63
What are intended consequences?
Outcomes that are expected from a decision.
64
What are unintended consequences?
Unexpected outcomes that arise from a decision.
65
What can change the economic decision-making process?
Changes in objectives, constraints, costs, benefits, information, and perspectives.
66
What is the first step in the 6-step decision-making template?
Identify the decision to be made by the economic agent.
67
What do consumers aim to achieve according to Step 2?
Maximise utility (satisfaction).
68
What constraints do producers face?
Budget and resource constraints.
69
What are the intended benefits for a consumer?
* Private benefit * Revenue for producers * Social benefit for governments.
70
What costs should be considered in Step 4?
* Direct costs * Opportunity costs.
71
What should economic agents do if Benefits > Costs?
Proceed with the decision.
72
What should be reviewed in Step 6 of the decision-making process?
Whether there is a need to review the decision based on intended and unintended consequences.
73
What is the decision-making template's acronym to remember?
OCBC (Objectives, Constraints, Benefits, Costs).
74
What is a consumer's decision when considering buying a car?
Whether to buy a car.
75
What are the private benefits of owning a car?
* More comfortable traveling * Increased convenience * Improved social status.
76
What are the direct costs of buying a car?
* Price of the car * Monthly installments * Fuel costs * Maintenance costs * Road tax * Insurance premiums.
77
What should be considered when gathering information for a car purchase?
* Time taken to drive * Car brands and models * Prices of fuel and servicing * Bank loan details.
78
What unintended consequences might arise from owning a car?
* Stress from traffic * Increased weight from less exercise.
79
What external changes may affect the decision to buy a car?
* Government policies * Improvements to public transport.
80
What does MPB stand for?
Marginal Private Benefit
81
What is a factor that can increase MPB?
Finding jobs that require travelling by car
82
What can cause changes in MPB?
Changing needs of the family, income changes
83
What external change can lead to an increase in MPC?
Government policies such as tightening of COE quota, setting up of satellite ERP
84
What can lead to a decrease in MPB?
Improvements to the public transport system
85
What is the first step in the decision-making template for a producer?
Decide whether to increase production of a car model
86
What is the primary objective of a producer?
Maximise profits
87
What are the types of constraints faced by producers?
* Budget constraints * Resource constraints
88
What are the benefits of increasing production?
Marginal benefits from revenue earned from the sale of one more car
89
What are some costs associated with increasing production?
* Wages for additional labor * Rental of additional factory space * Costs of new machinery * Opportunity costs
90
Fill in the blank: The opportunity cost of saving money in a bank is the _______.
interest returns that is forgone
91
What is the marginalist principle?
Weigh Marginal Benefits with Marginal Costs
92
When should a producer increase production?
When MR > MC
93
What should a producer do if MR < MC?
Reduce production
94
What factors may lead to a review of the production decision?
* Ability to achieve intended consequences * Presence of unintended consequences
95
What does positive economics examine?
Economic phenomena based on data and facts
96
How does normative economics differ from positive economics?
It examines economic phenomena using opinions, values, and judgement
97
What is the central economic problem?
Scarcity
98
What do opportunity costs represent?
Value of the next best alternative forgone
99
What is the goal of consumers in economic decision-making?
Maximise utility (satisfaction)
100
What is the goal of governments in economic decision-making?
Maximise societal welfare
101
What is the Production Possibility Curve (PPC) used to illustrate?
Scarcity, choice, and opportunity cost
102
What does productive efficiency refer to?
Production using the least cost method
103
What is the definition of a command economy?
A system where all resources are collectively owned by the government
104
What is a feature of a mixed economy?
Means of production are shared between private enterprise and government
105
What is one issue with command economies?
Inability to allocate goods efficiently

H2 ECONS (1 decks)

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