1.1 ppc+circular flow of income

Question 1

PPC

Answer 1

production possibility curve, also called production possibility frontier.
A curve showing the maximum combinations of goods or services that can be produced by an economy in a given period, if all the resources in the economy are being used fully and efficiently and the state of technology is fixed

Question 2

assumptions of PPC (5)

Answer 2

• each economy only produces two goods
• the goods produced using combinations og the available resources
• at each moment in time, the amount of resources that the country has is fixed
• the state of technology at each moment in time is fixed.
• the points on teh curve mean that all resources in the economy are fully employed

Question 3

efficiency (def+2kinds of efficiency)

Answer 3

refers to improved resoure use. it is where a firm can produce the same good, but with fewer resources.
two kinds: allocative and productive

Question 4

unemployment of resources

Answer 4

a situation where there are unused resources, anf not all factors of production are fully used.

Question 5

actual output

Answer 5

the total amount of goods and services that an economy is producing at a certain moment in time

Question 6

actual growth

Answer 6

When an economy produces a greater amount of goods and services in one period of time than in a previous one.

Question 7

points outside PPC

Answer 7

are unattainable combinations of a good. - this is due to scarcity

Question 8

potential output

Answer 8

The total amount of goods and services that an economy can produce when all of its available resources are being used efficiently.

Question 9

potential growth

Answer 9

When the production capacity of an economy increases from one period to another. It means that the maximum amount of output that an economy can produce when all of its resources are being used efficiently increases.

Question 10

PPC outward shift represents

Answer 10

increase in the potential output of a country

Question 11

factors causing potential output of a country to be increased

Answer 11

increase in
- quantity of FOP
- quality of FOP
- an improvement in technology

Question 12

capital goods

Answer 12

the tools and machinery necessary fro the production of other goods.

Question 13

consumer goods

Answer 13

Finished products that are ready for satisfying people’s wants, not used in any further production process.

Question 14

why is PPC usually a curve?

Answer 14

bc opportunity cost is not normally constant as you transfer resources from the production of one good to the other. this is bc not all FOP are suited for the production of both goods.

if all FOP are equally efficient at production each good, PPC would be a straight line

Question 15

FOP and different rewards

Answer 15

capital - interest
land - rent
labour - wages
entrepreneurship - profits

Question 16

national income

Answer 16

measure of total economic activity that takes place within an economy

Question 17

national output

Answer 17

The total value of goods and services that all firms from all industries of a country produce at a certain moment in time. It is usually measured by the GDP.

Question 18

national income = national output = national expenditure

Answer 18

in closed economy

value of goods and services that firms produce is the same from one period to another

households spend all their income -> national expenditure = total income

Question 19

5 sectors in open economy

Answer 19

households, firms, government, financial institutions, and foreign countries

Question 20

2 sectors of closed economy

Answer 20

households and firms

Question 21

5 assumptions of closed economy model

Answer 21

1. Households own all the factors of production.
2. Firms produce all goods and services.
3. There is no government.
4. There are no other countries to trade with (it is a closed economy).
5. There are no banks or commercial institutions.

Question 22

5 assumptions of open economy model

Answer 22

1. Households own the factors of production.
2. Firms produce goods and services.
3. Government collects taxes to provide public and merit goods to society.
4. There are foreign countries, that both produce goods and services that they export to other countries, and consume goods and services that they import from other countries.
5. There are financial institutions where households can save their income, and from which firms can take out loans to make investments and grow their businesses.

Question 23

leakages

Answer 23

flows of money that leave the economy as savings, taxes, and imports

Question 24

‘injections’

Answer 24

flows of money that enter the circular flow of income
e.g. investments, exports

Question 25

leakages > injections
leakages < injections

Answer 25

national income fall, less income circulating and economy will shrink
national income will increase and economy will grow

Question 26

transfer payments

Answer 26

Transfer payments are a type of government expenditure that is not in exchanges for goods and services. Often, transfer payments are used to redistribute income and support the poor.

Question 27

circular flow of income

Answer 27

A model that illustrates the interactions between economic agents in an economy. It shows how factors of production, goods and income flow between households, firms, government, the financial sector and the foreign sector.

Question 28

nine concepts of economy

Answer 28

scarcity, choice, efficiency, equity, economic wellbeing, sustainability, change, interdependence, and intervention

Question 29

needs

Answer 29

Things that people must have for survival such as food, shelter and clothing.

Question 30

wants

Answer 30

Goods and services that people would like to have but are not necessary for survival, such as TVs, computers and cars.

Question 31

actual economic growth

Answer 31

increase in output of goods and services

Question 32

actual economic growth

Answer 32

increase in output of goods and services actually produced

Question 33

potential economic growth

Answer 33

refers to an increase in a country’s productive capacity

Question 34

productive efficiency

Answer 34

When output is produced using the fewest possible amount of resources; when output is produced at the lowest possible cost.

Question 35

allocative efficiency

Answer 35

Producing the optimal combination of goods from a society’s point of view; achieved when the economy is allocating resources so that no one can be better off without making somebody else worse off.

allocative efficiency > productive efficiency

Question 36

difference between free goods and economic goods

Answer 36

economic goods
- made w scarce resources, thus opportunity cost is incurred
free goods
- do not embody scarce resources, thus does not incur opportunity cost