Ch1 Flashcards
(20 cards)
Definition of scarcity
Scarcity is the problem arising from limited resources and unlimited wants. That is, it is the excess of human wants over what can actually be produced with limited resources to fulfil these wants.
What are the 4 factors of production (FOP)?
Capital
Entrepreneurship
Land
Labour
What is positive economics?
- Seeks to describe and explain economic facts and events observed objectively
- statement that in principle, is capable of being refuted by reference to evidence.
What is normative economics?
(N)ormative
(O)pinion
- Looks at the outcomes of economic behaviour and questions whether they are good or bad
- A statement of value or subjective opinion that cannot be proved or disproved by an appeal to facts
Definition of opportunity cost.
Opportunity cost is the value of the next best alternative forgone when a choice is made.
What is rational decision?
- marginal benefit exceeds marginal cost
- maximise self-interest (eg. consumers’ satisfaction, producers’ profits)
- society’s scarce resources will be allocated efficiently
Definition of marginal benefit.
Marginal benefit refers to the additional benefit gained from consuming or producing one more unit of the good/service.
Definition of marginal cost.
Marginal cost is the additional cost incurred from consuming or producing one more unit of the good/service.
Draw a graph of rational decision making. (MB=MC)
MB: -ve gradient
MC: +ve gradient
E: intersection point
x-axis: quantity
y-axis: cost/benefit ($)
Definition of economic efficiency.
Economic efficiency is a situation where each good is produced at the minimum cost and where individual people and firms get the maximum benefit from their resources.
Definition of productive efficiency.
Productive efficiency is achieved when the firms in an economy are producing the maximum output for the given amount of inputs, or producing a given output with the least cost combination of inputs.
Definition of allocative efficiency.
Allocative efficiency is achieved when the current combination of goods and services produced and consumed allows the society to attain the greatest level of satisfaction.
When ____ is satisfied, total economics welfare is maximise.
P=MC
Definition of production possibility curve (PPC).
The Production Possibility Curve (PPC) shows the maximum attainable combinations of two goods and services that can be produced in an economy, when all the available resources are used fully and efficiently, at a given state of technology.
How to draw PPC?
Draw a curve connecting x and y axis
x-axis: Good X
y-axis: Good Y
scarcity/ constraint: points outside the PPC
unemployment/ underemployment: points inside the PPC
productive/allocative efficiency: points on PPC
To produce an additional unit of a good means having to move increasingly ___ amounts of resources from the alternative good, and hence, the ___ the amount of alternative good that has to be sacrificed.
greater, greater
What is actual economic growth?
- related to the concept of short-run growth
- measured by the percentage annual change in national output actually produced
- illustrated by an outwards movement from a production point t\within the PPC to a production point closer to or on the PPC
(better utilisation of existing resources)
What is potential economic growth?
- long-run economic growth
- defined as an increase in the productive capacity of the economy
- illustrated by an outward shift of the PPC
(the ability of the economy to produce)
What are the main sources of long run economic growth?
QQT
1. increases in the quantity of resources
2. improvements in the quality of resources
3. Technological advancement
(PPC shifts outwards/ in a skewed manner)
How different types of market allocate resources?
- command economy
- mixed economy
- free market economy
In a free market economy, the allocation of resources is determined by the market forces of demand and supply based on the decisions of consumers and producers operating through the price mechanism.
