Questions and Answers
What is the fundamental principle of the Law of Scarcity?
Resources are finite, but wants are infinite
What is the implication of infinite resources?
Everything would be free
What is the definition of Economics based on the Law of Scarcity?
The study of the production and distribution of goods and services to satisfy humans' finite wants and needs with scarce resources
What does the Production Possibility Frontier (PPF) show?
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What happens when a country is operating on its Production Possibility Frontier (PPF)?
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What is the primary reason for the generation of the Production Possibility Frontier (PPF)?
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Study Notes
Law of Scarcity
- Economic resources (factors of production) are not infinite, including land, labor, capital, and talent/entrepreneurship.
- If resources were infinite, everything would be free, but since they're not, scarcity exists.
- The Law of Scarcity is a fundamental concept in economics, emphasizing that resources are limited.
Definition of Economics
- Economics is the study of the production and distribution of goods and services to satisfy humans' finite wants and needs with scarce resources.
Production Possibility Frontier (PPF)
- PPF is generated due to the Law of Scarcity.
- PPF shows the maximum amounts of production that can be obtained by an economy given its:
- Technological knowledge
- Quantity of inputs or resources available
- When a country operates on its PPF, it is allocating resources efficiently.
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