Central Economic Problem Flashcards
(20 cards)
What is definition of Opportunity Cost
Opportunity Cost is defined as the value of the next best alternative foregone when a choice is made
What are the 4 Factors of production?
-Capital
- human Capital/ labour
- Entrepreneurship
- land
What does the PPC show?
All combinations of the maximum quantities of two goods that can be produced by an economy with a given amount of resources fully and efficiently employed at a given state of technology and a given time period
What does the PPC Curve illustrate [5]
- Scarcity -> whatever that’s outside the curve sugggest inability to obtain it
- Choice -> need to choose among the alternative attainable combinations along the curve
- Trade off -> how much of one unit of good needs to be sacrificed to create another unit of good
- Opportunity Cost -> illustrated by the downward slope of PPC
- Efficiency -> Productive efficiency -> maximum output possible with resources / Allocative Efficiency: single point where allocation of resources to produce the combination most wanted by society
How does a PPC illustrate Actual Growth
Movement of a point closer to the PPC
How does PPC show potential growth
-Outward shift of ppc curve to the right
When does a pivoted shift of the PPC occur?
Occurs when one factor only affects one of the type of goods (capital or consumer goods)
What is the answering technique for PPC questions involving opportunity costs or explain consequence
- Cause
- Opportunity cost definition
- (change in quantity) question how does it affect the ppc producing from E1 to E2
- assuming next best alternative (other quantity) ,(more/less) goods will be produced from _ to _
Represent movement of the PPC or point of PPC from _ to _
Oppocost is the benefit derived from producing _ to _ good foregone is incurred
objectives of the 3 agents
government - maximise social benefit
producer - maximise profits
consumer - maximise utility
how to answer decision making framework question?
- objective of agent
state condition
2.define the MB and the example in the question - define the MC and the example in the question
4.explain another factor based on different perspectives - evaluate more stand
what is marginal benefit
Marginal [private/social]Benefit(revenue) refers to the additional utility/profit/welfare gained from consuming or producing and sell one more unit of a good or service.
what is marginal cost
Marginal [social/private]Cost refers to the additional utility/profit/welfare incurred from producing or consuming one more unit of a good or service.
what are the 7 non price determinant factors of supply
[WETPIGS]
- Weather and natural conditions
- expectations of price changes
- technology
- price of related goods (competitive supply and joint supply)
- input prices (cost of factor of production)
- Government intervention
- Number of Suppliers
the 5 non price determinant factors of demand
[EGYPT]
- Expectation of price changes
- Government Regulations
- Income, Income distribution
- Price of related goods
- Taste and preference
How to explain change in Income as a demand factor
Income increases, improves purchasing power , assuming something is a normal good , demand will increase
How to explain impact on the economy using PPC
- What kind of growth is it → actual/potential [keyword: economy]
- quantity and quality of What factor of production is the question at
- increase/decrease productive capacity
- explain how it changes the PPC
eg. outward/inward shift of ppc pivoted shift
How to answer shifts questions
FACE
and PAP
- Evidence from passage
- factor:
- more/less [definition of demand/supply] (a)
- change in demand/supply goes
- curve shifts[C]
Repeat for different supply and demand curve
Price adjustment Process[pap]
At original price there is a shortage/surplus as Qd >/< Qs of _ this creates upward/downward pressure on price
process continues until new market equilibrium is reached - Effect on Price and quantity
What about simultaneous shifts?
Determine which is indeterminant and assuming which curve shifts more
- When Supply and demand move in the same direction -> price is indeterminant
- When they move in opposite directions quantity is indeterminant
How to Answer Opportunity cost
- define Opp cost
- using the definition to apply to the problem
ie. state what is the value forgone when what choice is made
how to explain actual growth on a PPC?
- Actual growth economy
- __ factor causes increase in under utilised and underemployed resources
- more/less labour and resources are employed to produce more/less output
- movement of PPC within pPC to a point closer to the PPC
