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Questions and Answers
What does the production possibilities frontier (PPF) illustrate regarding opportunity cost?
What does the production possibilities frontier (PPF) illustrate regarding opportunity cost?
If an economy moves from point B to point C on the PPF, what is the opportunity cost?
If an economy moves from point B to point C on the PPF, what is the opportunity cost?
What can be inferred about points on the PPF?
What can be inferred about points on the PPF?
How does specialization affect production as mentioned in the content?
How does specialization affect production as mentioned in the content?
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Which of the following statements about inefficiency on the PPF is correct?
Which of the following statements about inefficiency on the PPF is correct?
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Why does the PPF curve downwards?
Why does the PPF curve downwards?
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What impact does producing more of a product have on opportunity cost?
What impact does producing more of a product have on opportunity cost?
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What occurs at point F in relation to efficient production?
What occurs at point F in relation to efficient production?
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What does opportunity cost refer to?
What does opportunity cost refer to?
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Which of the following statements is true regarding opportunity cost?
Which of the following statements is true regarding opportunity cost?
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How does scarcity imply choice?
How does scarcity imply choice?
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What is the significance of opportunity cost in decision-making?
What is the significance of opportunity cost in decision-making?
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If a person decides to spend time studying instead of working, what is the opportunity cost of studying?
If a person decides to spend time studying instead of working, what is the opportunity cost of studying?
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What occurs when opportunity costs increase?
What occurs when opportunity costs increase?
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Which of these best describes the relationship between scarcity and opportunity cost?
Which of these best describes the relationship between scarcity and opportunity cost?
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In the context of production choices, how is opportunity cost best quantified?
In the context of production choices, how is opportunity cost best quantified?
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What does opportunity cost primarily represent in economic decision-making?
What does opportunity cost primarily represent in economic decision-making?
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Which scenario best illustrates the concept of opportunity cost?
Which scenario best illustrates the concept of opportunity cost?
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How does scarcity affect opportunity cost in economics?
How does scarcity affect opportunity cost in economics?
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What is the relationship between opportunity cost and resource allocation?
What is the relationship between opportunity cost and resource allocation?
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In terms of opportunity cost, what does a decision to pursue a higher education imply?
In terms of opportunity cost, what does a decision to pursue a higher education imply?
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What key factor must be considered to determine opportunity cost?
What key factor must be considered to determine opportunity cost?
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Which statement about opportunity cost is false?
Which statement about opportunity cost is false?
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When making a choice, what does a higher opportunity cost usually indicate?
When making a choice, what does a higher opportunity cost usually indicate?
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Study Notes
Economics Definitions
- Economics is a social science, focusing on the efficient allocation of scarce resources to maximize human needs.
- Economists have different perspectives. Adam Smith defined economics as the study of wealth, while Alfred Marshall focused on material welfare.
- Robbins defined economics as the study of human conduct relating to the use of scarce resources with alternative uses.
Scarcity
- Scarcity is the imbalance between unlimited wants and limited resources.
- All economic resources (land, labor, capital, entrepreneurship) are finite.
- Free resources are abundant; their quantities exceed demand at zero price (e.g., sunlight).
- Scarce resources have limited availability compared to demand at zero price (e.g., fertile land, skilled labor).
Types of Resources
- Economic resources are categorized as:
- Labor (physical and mental human efforts in production and distribution)
- Land (natural resources)
- Capital (manufactured inputs for production)
- Entrepreneurship (organizing other factors to produce goods/services, taking risks)
Economic Systems
- Capitalism: Private ownership, production driven by entrepreneurs, minimal government intervention.
- Features: Private property rights, consumer choice, profit motive, competition.
- Advantages: Flexibility, economic growth, decentralized power, new goods development.
- Disadvantages: Income inequality, unbalanced economic activity, exploitation.
- Command Economy: State-controlled ownership and allocation of resources.
- Features: Collective ownership, central economic planning, control over all economic activities.
- Advantages: Balanced economic growth, elimination of private monopolies/inequality.
- Disadvantages: Absence of automatic price determination, lack of incentives for efficiency, restricted economic freedom.
- Mixed Economy: Combines private and public sectors.
- Features: Coexistence of public and private sectors, government control over certain sectors.
- Advantages: combines the strengths of capitalist and command economies, efficient allocation, opportunities for growth, social welfare.
- Disadvantages: Inefficiency in some sectors, possible inefficiencies or conflict between the two sectors.
Basic Economic Questions
- What to produce? Allocation of resources to decided quantities and types of products.
- How to produce? Selecting techniques of production to optimize the resources used for producing the selected types and quantities of products.
- For whom to produce? Distribution of produced products to the members of society, to maximize the welfare and equality across consumers.
Production Possibility Curve (PPC)
- A curve depicting the possible combinations of goods/services that can be produced given the resources and technology available.
- Points on the PPC are attainable and efficient.
- Movement along the curve reflects scarcity and opportunity cost.
- The slope of the PPC represents the opportunity cost of producing one good in terms of forgone production of another.
Economic Growth and the PPF
- Economic growth is an expansion of the total output or production capacity .
- It occurs due to increased resources (quantity/quality) and technological advancements.
- These improvements shift the PPC outward, allowing for more production.
Circular Flow Model
- A visual representation of the flow of money, resources, goods, and services in an economy.
- Involves households, firms, and the government interacting in product and factor markets.
- Shows how income generated in one sector is used in another for different economic activities.
Positive vs Normative Economics
- Positive economics describes the way the economy works (objective and factual statements).
- Normative economics describes how the economy should function (subjective value judgments).
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Description
This quiz covers fundamental definitions and concepts in economics, including the nature of scarcity and types of economic resources. It explores differing perspectives from notable economists and their interpretations of economics. Test your understanding of how resources are classified and their importance in economic theory.
