1.1.3 & 1.1.4 - econ problem, OC & PPF

Question 1

What is the problem of scarcity

Answer 1

• the worlds resources are finite = scarce
• scarcity means economic agents can only obtain a limited amount of resources at any moment in time

Question 2

def of economic goods?

Answer 2

resources that are scarce

Question 3

def of free goods?

Answer 3

resources that are not scarce

Question 4

What is THE basic economic problem

Answer 4

a finite number of resources for an infinite number of wants and needs

Question 5

Whats the importance of opportunity costs to economic agents?

Answer 5

• OC for consumers: whats given up when spending on an item
• OC for producers: whats given up due to limited £ (eg OC of new machine is 3 workers yearly wage)
• OC for government: (eg OC of fighter plane is a new primary school)

Question 6

What are the 4 economic resources - give details on each

Answer 6

Land - land and natural resources
- non-renewable resources: land resources that once exploited cannot be replaced
- non-sustainable resource: diminish overtime due to economic exploitation
- renewable resources: can be exploited repeatedly as they can be replaced (helps with problem of scarcity)
- sustainable resources: type of renewable which can be economically exploited and will not run out

Labour - workforce of an economy (human capital)
- education and training can increase productivity and value of human capital

Capital - manufactured stock of tools, machines, factories and other resources used for production of goods and services
- working capital: resources in production system waiting to be transformed into goods to be sold
- fixed capital: economic resources used to transform working capital into goods or services (eg factories)

Enterprise - seeking out profitable opportunities for production and taking risks to exploit these
- entrepreneurs organise factors of production and take risks using their own money and the financial capital of others

Question 7

Rewards for factors of production:

Answer 7

land - rent/lease payments for their land or a royalty (share of profit)
labour - wages for workers
capital - owners get rent or share of profits - interest
enterprise - get profit from risk

Question 8

how to increase production?

2 ways

Answer 8

• reallocation of FoP (movement along PPF)
• try and SHIFT the PPF - changing quantity or quality of their FoP

Question 9

Define PPF

Answer 9

the maximum output potential an economy can achieve when all its resources are fully/efficiently employed

Question 10

def opportunity cost

Answer 10

the next best alternative forgone

Question 11

what 2 things does the PPF curve show?

Answer 11

• maximum possible production of 2 goods/services with given factors of production
• the various combination of 2 goods/services that can be produced with given factors of production

Question 12

What is happening from point a to b?

Answer 12

the opportunity cost of producing to more tablets (50 to 60) is the 15units of laptops that have been forgone

Question 13

what law does the PPF curve indicate?

Answer 13

the curve on the PPF suggests that law of increasing OC

Question 14

what happens as we move futher along the curve?

Answer 14

the factors of production are more suited to producing one thing than they are another thing

Question 15

what does a linear PPF demonstrate?

Answer 15

constant OC

Question 16

What is any point ON the curve?

Efficiencies

Answer 16

productively efficient - uses all FoP to that maximum lvl = max production

Question 17

What is any point INSIDE the curve?

Efficientcies

Answer 17

productively INefficient - wasting FoP/not getting mamximum use eg unemployment on a macro level

Question 18

what does point e represent?

Efficiencies

Answer 18

point e is unattainable with given FoP

Question 19

what is allocative efficiency?

Answer 19

when whats being produced satisfies consumer demand - satisfies consumer wants

Question 20

where is allocative efficiency on the PPF?

Answer 20

TRICK QUESTION - you cannot tell as you dont know consumers demands from a PPF

Question 21

what is Parato efficiency?

Answer 21

idea that nobody cannot be better off without making someone else worse off - any point on the PPF