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Micro Economics Alevel > Michaels PPFs approved > Flashcards

Michaels PPFs approved Flashcards

(54 cards)

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1
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2
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3
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What is a production possibility frontier (PPF)?

A

A curve showing the maximum potential output of two goods when all resources are efficiently utilized.

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4
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What does an outward shift in the PPF indicate?

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Economic growth due to improved resource quality, quantity, or technological advancements.

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5
Q

How does the law of diminishing returns relate to the PPF?

A

As production of one good increases, opportunity cost rises due to diminishing efficiency.

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6
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What are the differences between capital goods and consumer goods?

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Capital goods: Used to produce other goods (e.g., machinery).Consumer goods: Directly satisfy consumer needs (e.g., clothing).

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7
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What is Pareto efficiency?

A

A situation where no one can be made better off without making someone else worse off.

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8
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What is the law of diminishing returns in the context of the PPF?

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As production of one good increases, the opportunity cost (in terms of other goods forgone) also increases.

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9
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Explain a scenario of economic decline using the PPF. Answer:

A

An inward shift of the PPF could result from resource depletion, war, or natural disasters, reducing the economy’s productive potential.

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10
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Why would the curve shift outwards? list 3 reasons

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Better management of factors of productionIncrease in the stock of capital and labourHigher productivity/effiency of factor inputs

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11
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Why would the curve shift inwards? List 3 reasons

A

Lower productivityDamaging effects of natural disastersDestruction/loss o factor inputs caused by civil war

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12
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Q: What is economics as a social science?

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A: Economics studies the choices people make under conditions of scarcity and uncertainty, analyzing how resources are allocated to satisfy needs and wants.

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13
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Q: How does economics differ from natural sciences?

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A: Unlike natural sciences, economics deals with human behavior, which is unpredictable and influenced by emotions, social factors, and value judgments, making it less reliant on controlled experiments.

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14
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Q: What is the difference between positive and normative statements?

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A: Positive statements are objective and testable, while normative statements are subjective and based on value judgments.

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15
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Q: How do value judgments influence economic decision-making and policy?

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A: Value judgments shape opinions on the best economic choices, influenced by moral, political, and social considerations, leading to policy debates.

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16
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Q: What are the three key economic decisions?

A

A: 1) What to produce, 2) How to produce, and 3) Who benefits from the goods and services produced.

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17
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Q: What is the central purpose of economic activity?

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A: The production of goods and services to satisfy human needs and wants.

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18
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Q: What are the four factors of production?

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A: Land, Labor, Capital, and Enterprise.

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19
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Q: Why is the environment considered a scarce resource?

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A: Natural resources are limited, and their overuse can lead to depletion and long-term sustainability issues.

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20
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Q: What is the fundamental economic problem?

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A: Scarcity—resources are limited, but human wants are unlimited, requiring choices about resource allocation.

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21
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Q: How does scarcity lead to opportunity cost?

A

A: Because resources are limited, choosing one option means sacrificing another, leading to opportunity cost, which is the value of the next best alternative foregone.

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22
Q

Q: Define scarcity.

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A

A: The condition where limited resources cannot meet unlimited wants, leading to the need for choice.

23
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Q: Define opportunity cost.

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A

A: The value of the next best alternative forgone when making a choice.

24
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Q: What are the factor rewards for each factor of production?

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A

A:Land → Rental income Labor → Wages and salaries Capital → Interest and dividends Enterprise → Profits

25
Q: What is the difference between capital and consumer goods?
A: Capital goods are used to produce other goods (e.g., machinery), while consumer goods satisfy needs and wants directly (e.g., food, electronics).
26
Q: What are the three types of consumer goods?
A: Durable goods (e.g., smartphones, washing machines) Non-durable goods (e.g., coffee, electricity) Consumer services (e.g., haircuts, entertainment)
27
Q: What are renewable and non-renewable resources?
A: Renewable resources: Can be replenished naturally over time (e.g., solar energy, fish stocks). Non-renewable resources: Finite and cannot be replaced once used (e.g., crude oil, coal).
28
Q: How are scarce resources rationed?
A: By market price, By consumer income, By assessment of need, By household location, By education level, age, gender, nationality
29
Q: If a government increases healthcare spending, what is the opportunity cost?
A: Reduced funding for other areas like education, defense, or infrastructure.
30
Q: How does behavioral economics challenge the assumption that all consumers and businesses act rationally?
A: It suggests that emotions, biases, and heuristics influence decision-making, leading to irrational choices.
31
Q: Why might a government intervene in markets to allocate resources?
A: To correct market failures, reduce inequality, and ensure public goods (e.g., education, healthcare) are provided efficiently.
32
Q: How does market price help ration scarce resources?
A: Higher prices discourage excessive use and allocate resources to those who value them most.
33
Q: What are the economic consequences of using land for biofuel instead of food production?
A: Increased biofuel production may reduce food supply, leading to higher food prices and potential food shortages.
34
Q: Why do political views influence economic decisions?
A: Different political ideologies prioritize different economic policies, such as market-based solutions versus government intervention.
35
Q: What is a Production Possibility Frontier (PPF)?
A: A PPF shows the alternative combinations of two goods or services that can be produced when all resources are fully and efficiently employed.
36
Q: What does a point inside the PPF represent?
A: It represents inefficient use of resources or unemployment of resources.
37
Q: What does a point on the PPF curve indicate?
A: It represents maximum productive efficiency where resources are fully utilized.
38
Q: What does a point beyond the PPF represent?
A: It is unattainable with current resources and technology unless there is economic growth.
39
Q: How does a PPF illustrate resource allocation?
A: It shows how an economy must decide how to distribute resources between different goods based on opportunity cost and trade-offs.
40
Q: What is the significance of a concave PPF?
A: A concave PPF reflects the law of diminishing marginal returns, meaning that as more resources are allocated to one good, the extra output gets smaller.
41
Q: Why are all points on the PPF productively efficient?
A: Because they represent full utilization of resources without waste.
42
Q: Why are not all points on the PPF allocatively efficient?
A: Allocative efficiency depends on consumer preferences and societal needs, meaning some combinations may not be the most desirable for society.
43
Q: Define opportunity cost in relation to the PPF.
A: Opportunity cost is the value of the next best alternative foregone when resources are reallocated between goods on the PPF.
44
Q: How does a linear PPF differ from a concave PPF?
A: A linear PPF suggests constant opportunity cost, whereas a concave PPF indicates increasing opportunity cost due to diminishing returns.
45
Q: What factors can cause the PPF to shift outward?
A: Higher productivity/efficiency of factor inputs Better management of resources Increase in the stock of capital and labor supply Technological improvements and innovation Discovery of new natural resources
46
Q: What factors can cause the PPF to shift inward?
A: Natural disasters (earthquakes, floods, droughts) War and destruction of infrastructure Mass emigration leading to labor shortages Decline in productivity due to economic recession
47
Q: What is the law of diminishing marginal returns?
A: It states that as more resources are allocated to the production of a good, the additional output (marginal return) decreases.
48
Q: How does a PPF illustrate trade-offs?
A: Moving along the PPF requires sacrificing some of one good to produce more of another, demonstrating trade-offs.
49
Q: What happens when an economy moves from an inefficient point inside the PPF to a point on the PPF?
A: Economic output increases due to better resource utilization.
50
Q: If an economy shifts resources from consumer goods to capital goods, what long-term effect will this have on the PPF?
A: The PPF may shift outward in the future due to increased investment in capital goods, which boosts production capacity.
51
Q: How can a government use supply-side policies to shift the PPF outward?
A: By improving education, investing in infrastructure, encouraging research and development, and reducing regulatory burdens to enhance productivity.
52
Q: Why does opportunity cost increase as more resources are allocated to one good?
A: Because resources are not perfectly adaptable for all uses, reallocating them to a different industry often results in less efficient production.
53
Q: How does a recession affect the position of an economy on the PPF?
A: The economy moves inside the PPF due to unemployment and underutilization of resources.
54
Q: How does economic growth affect the PPF?
A: Economic growth shifts the PPF outward, allowing more of both goods to be produced.

Micro Economics Alevel (12 decks)

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