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9 Cards in this Set
- Front
- Back
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What are the three fundamental economic questions?
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1. What to produce? 2. How to produce? 3. For whom to produce? |
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Opportunity Cost
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opportunity cost is the best alternative sacrificed for a chosen alternative. because of scarcity we must make a choice at the expense of other choices. e.g you cannot spend the same hour studying as you would taking a nap. you cannot use the same 10 dollars to purchase a movie ticket, to purchase a sandwich. |
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Marginal Analysis
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marginal analysis examines the effect of additions or subtractions from a current situation. considers the marginal effects of change. The rational decision maker decides on an option only if the marginal benefit exceeds the marginal cost. e.g. should you study or talk on the phone? if you decide that a higher grade is important, than you would say there is more benefit to studying for an hour than talking on the phone. |
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Production Possibilities Curve
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a curve that shows the maximum combination of two outputs and economy can produce in a given period of time with its available resources and technology. The assumptions of the PPC is: 1. Fixed resources: the quantity and quality of resources stays the same. 2. fully employed resources: the economy operates with all factors of production fully employed without waste or mismanagement. 3. Technology unchanged: creates limits or constraints in the amount and types of good an economy can produce. Scarcity limits an economy to points on or below its PPC. |
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Technology
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The body of knowledge applied to how goods are produced. |
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What are efficient points? what happens when we move between them?
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all the points on a PPC are maximum output levels with given resources and technology, there fore they are efficient with no waste. a movement between two points on a PPC, means that more of one product is being produced only by producing less than another. |
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Law of Increasing Opportunity Cost
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the opportunity cost increases as production of one output expands. The lack of interchangeability between workers is the cause of increasing opportunity cost and the bowed-out shape of the PPC. e.g. Tanks and Sailboats, as we increase production of tanks we must reduce production of sailboats. since workers will have been trained to make one or the other, and resources are different. |
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Economic Growth, what is it and what affects growth?
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economic growth is the ability to produce greater levels of output, and is represented by an outward (right) shift in PPC. Increase in resources and change in technology make economic growth possible. reductions in resources make the PPC move inward (left) |
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What is Investment?
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The accumulation of capital, such as factories, machines, and equipment that is used to produce goods a services. If an economy doesn't invest in new technology, everything else being the same, the country will not grow. a nation can accelerate economic growth by increasing its production of capital goods in excess of the capital being worn out in the production process.
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