Introduction to Economics: Scarcity and Choice

10 Questions

What is scarcity in economics?

Scarcity in economics is a situation that arises when people have unlimited wants but limited resources available.

Explain the concept of choices in economics.

Choices in economics involve decisions on how resources, such as time and money, are allocated to different activities like work, school, leisure, and production of goods and services.

How does scarcity impact the decision-making process in economics?

Scarcity necessitates that individuals, businesses, and governments make choices on what goods and services to produce and consume due to limited resources.

Explain why the production possibility curve is negatively sloped.

The production possibility curve is negatively sloped because in a fully employed economy, more of one good can be produced only if resources are freed by producing less of other goods.

What does point c on the production-possibility curve represent?

Point c represents either an inefficient use of resources or a failure to use all the resources that are available.

Explain the concept of opportunity cost in the context of moving from point a to point b on the production-possibility curve.

The opportunity cost of moving from point a to point b is the reduction in private sector goods (ΔC) that occurs when producing additional public sector goods (ΔG).

What are the four factors of production and their corresponding rewards?

The four factors of production are Land (Rent), Labour (Wage), Capital (Interest), Entrepreneurs (Profit).

What are the three main questions in Economics related to production choices?

The three main questions are: 1. What to produce? 2. How to produce? 3. For whom to produce?

What is the opportunity cost in decision making?

The opportunity cost is the value of the next best alternative that is foregone.

How is a Free Market Economy defined?

A Free Market Economy is one in which market forces (Demand and Supply) guide the allocation of resources within a society.

Study Notes

Economics is the study of how people use limited resources to satisfy their unlimited material wants, addressing the fundamental problem of scarcity and the resulting necessity for choices.
Scarcity is a condition where people have unlimited wants but limited resources, leading to the need to choose what to produce and how much.
Choices involve determining how much time and resources are allocated to work, education, and leisure as well as how to combine resources to produce goods and services.
The Production Possibility Curve is a graph illustrating the maximum output that can be produced when resources are fully employed, separating attainable combinations from unattainable ones.
The curve is negatively sloped, indicating that producing more of one good necessitates producing less of another.
Factors of production include land, labor, capital, and entrepreneurs, which are limited and necessitate allocation to various industries and occupations.
Economics focuses on production and distribution of goods and services, with the core questions being "What to produce?", "How to produce?", and "For whom to produce?".
The opportunity cost represents the value of the next best alternative foregone in decision making, and the concept of marginal analysis is used to select the best alternative.
Economic systems include free market economies, where market forces dictate resource allocation, and planned or mixed economies, where governments play a significant role in decision making.