All Flashcards
How does scarcity apply to a country deciding between funding healthcare or education?
The country has limited resources (tax revenue) and must choose how to allocate them, giving up some of one service to fund the other.
How does opportunity cost apply to a student choosing between studying and working?
The opportunity cost of studying is the money the student could have earned working; the opportunity cost of working is the potential grade improvement from studying.
How does the PPC apply to a farmer deciding between growing corn and soybeans?
The PPC shows the maximum combinations of corn and soybeans the farmer can produce with their land, labor, and capital, given their technology.
How does productive efficiency relate to a factory operating at full capacity?
Operating at full capacity means the factory is producing the maximum possible output with its resources, representing a point on the PPC and productive efficiency.
How does allocative efficiency relate to a government deciding how much to spend on defense vs. social programs?
Allocative efficiency means the government is allocating resources to defense and social programs in the proportions that best reflect society's needs and preferences.
How does increasing opportunity cost apply to a country shifting from agriculture to manufacturing?
As the country produces more manufactured goods, it must give up increasing amounts of agricultural output because resources become less and less suited to manufacturing.
How does economic growth, depicted by a shift in the PPC, impact a society's standard of living?
Economic growth allows a society to consume more of all goods and services, potentially leading to a higher standard of living.
How does a technological advancement in renewable energy affect a country's PPC?
If the tech advancement is only in renewable energy, the PPC will shift outward more along the renewable energy axis, allowing the country to produce more renewable energy without sacrificing as much of other goods.
How does a natural disaster affect a country's PPC?
The PPC will shift inward. The country can produce less of both goods.
How does international trade allow a country to consume beyond its PPC?
By specializing in producing goods where they have a comparative advantage and trading with other countries, a country can access a combination of goods and services that lies outside its own production possibilities.
What are the differences between productive and allocative efficiency?
Productive efficiency means producing at the lowest possible cost (any point on the PPC); allocative efficiency means producing the mix of goods society desires (the best point on the PPC).
What are the key differences between a movement along the PPC and a shift of the PPC?
A movement along the PPC represents a reallocation of resources between two goods, while a shift of the PPC represents a change in the economy's overall productive capacity.
What is the difference between constant and increasing opportunity cost, and how does each affect the shape of the PPC?
Constant opportunity cost means resources are equally adaptable (straight-line PPC); increasing opportunity cost means resources are not perfectly adaptable (bowed-out PPC).
Compare and contrast the causes of economic growth and economic contraction as they relate to the PPC.
Economic growth (outward shift) is caused by increased resources or technology; economic contraction (inward shift) is caused by decreased resources or technology.
What is the difference between producing at a point inside the PPC and producing at a point outside the PPC?
Producing inside the PPC means resources are underutilized; producing outside the PPC is unattainable with current resources and technology.
How does specialization relate to a country's PPC, compared to a country that produces everything itself?
Specialization allows countries to produce more efficiently and potentially consume beyond their own PPC through trade, while a country that produces everything itself is limited by its own PPC.
Differentiate between how a technological improvement in only one industry affects the PPC versus a technological improvement that affects all industries.
A technology improvement in one industry pivots the PPC outward along that industry's axis, while a technology improvement in all industries shifts the entire PPC outward.
Compare the effects of a natural disaster versus a government policy on a country's PPC.
A natural disaster typically causes an inward shift of the PPC due to resource destruction, while a government policy can have varying effects, potentially shifting the PPC inward or outward depending on the policy's goals and impacts.
What is the difference between opportunity cost and monetary cost?
Opportunity cost is the value of the next best alternative forgone; monetary cost is the explicit price paid for something.
Compare the impact of increased labor force participation versus increased capital investment on the PPC.
Increased labor force participation shifts the PPC outwards, especially along the labor-intensive good. Increased capital investment shifts the PPC outwards, especially along the capital-intensive good.
What is scarcity?
Limited resources + unlimited wants = the fundamental economic problem.
What are trade-offs?
Because of scarcity, every decision involves giving something up.
What is opportunity cost?
The value of the next best alternative you give up when making a choice.
What are production possibilities?
All the different combinations of goods and services an economy can produce with its limited resources and technology.
What is the Production Possibilities Curve (PPC)?
A graph that visualizes the production possibilities for two goods.
What is productive efficiency?
Producing at the lowest possible cost; represented by any point on the PPC.
What is allocative efficiency?
Producing the specific mix of goods that society desires; the point on the PPC that best meets society's needs.
What is increasing opportunity cost?
As you produce more of one good, the opportunity cost (what you give up) increases.
What is constant opportunity cost?
You give up the same amount of one good for each additional unit of the other good.
What is economic growth (in terms of the PPC)?
A shift of the entire PPC to the right, meaning we can produce more of both goods.