UNIT 3 AOS 1 - part 1 Flashcards
Relative scarcity
def
- unlimited needs and wants but only limited resources
- onsumers act in Self-interest
- Uimted vs limited
opportunity cost
def
- the lost of value of the next best alternative when another alternative is taken
production possibility frontier (PPF) model
def
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
* Along the PPF is good use of resources (lowest COP)
3 basic economic questions
what are they?
- What
- What and how MUCH to produce
- By the forces of demand and supplied -> determined by consumer sovereignty - needs and wants (demand) determines the production of g/s
- QD = QS, the equilibrium
- to limit waste
- How
- technical efficiency- produce at cheap rate without losing quality
- the combinatino of resources (such as labour/machinery)
- Efficiency / to reducecost of production
- relative scarcity/PPF
- Whom
- Who to produce for
- Which market to produce for
- income - ability to buy
So, there is demand for their goods and services and maximise their profits
Trade off
def
all other opportunities forgone with a choice Is made.
Cost benefit analysis
def
is where one will take all the pros and cons and give it some level of value so people can make informed decisions
3 basic eco question
- What
- What and how MUCH to produce
- QD = QS, the equilibrium
Where scares resources being directed?
= relative prices
= send singals - How
- produce at cheap rate without losing quality
- __combination__ of __labour/machinery__ to produce the g/s
To keep LOW COP
= TE enables this - 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
Allocative effiency
- best combination of needs and wants
- satisfied LIVING STANDARDS
- one point on PPF
- max out per in
A (one point)
Technical effiency
- ↓ COP
- ↓ waste
- all points on PPF
max out for given in - WITHOUT COMPROSMING QUALITY
A,B,C (anywhere on PPF)
Dynamic effiency
- speed at which firms can relocate recourses to meet demand
- (changing conditions in supply and demand)
Intertemporal effiency
- balancing allocation of resources between different time periods
- producing at point F without increasing capacity may be bad for future generations
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
What is a market?
- a place where buyers and sellers meet to exchange goods and services
- A place of transaction
- Impacted by supply and demand (market mechanism)
perfectly competitive market
characteristics
- 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
