Central problem of economics quiz
What are the objectives of a govt?
Maximise economic efficiency and equity
What is the constraint faced by a consumer when making choices?
Amount of income
What is the constraint faced by producers
Amount of resources they possess
What is the Constraint faced by a govt?
Amount of revenue (taxes) collected
Why are FOPS not homogenous?
As more units of Good A is produced,more resources that are poorly suited for the production of good A will be allocated to produce more good A
Define Allocative Efficiiency
The allocation of resources to achieve the combination of goods and services that can maximise a society's needs and wants
Define potential growth
Increase in the productive capacity of an economy to produce more goods and services
What are the factors of productions?
Land, Labour, Capital, Entrepreneurship
What is the marginal benefit and cost of the govt?
Marginal Social Benefit (MSB) and Marginal Social Cost (MSC)
What is the marginal benefit and marginal cost for consumers?
Marginal private cost (MPC) and marginal private benefit (MPB)
What is the marginal benefit and cost of producers?
Marginal revenue (MR) and marginal cost (MC)
What is the objective of a producer?
Maximise profitablity
What is the objective of a consumer?
Maximise utility
Define constraints
The fundamental economic problem of society
Define Marginal Benefit
The increase in the total beenefit that arises from the production or consumption of an additional unit of good and services.
Define Marginal cost
The increase in total cost that arises from producing or consuming an additional unit of good and services.
Define costs and benefits
The monetary and non-monetary costs and benefits of every decision ever made
How is choice illustrated in the PPC?
The need to choose among the alternative combinations along the slope
Define oppotunity cost
The net benefit that could have been derived from the next best alternative forgone when a choice is made
What is the function of the PPC?
The ppc shows all combinations of the maximum quantities of two goods that can be produced by an economy with a given amount of resources fully and efficiently employed at a given time period.
Why is choice inevitable?
The problem of scarcity
Define Productive Efficiency
The situation when all resources in a given economy are fully and efficiently employed to achieve the maximum output possible
How is opportunity cost illustrated in the PPC?
The slope of the the PPC, the slope represents the units of Good A that needs to be given up in order to produce good B
Why does scarcity necessitate choice?
The society needs to allocate limited resouces to produce a certain combination of goods and services that satisfy maximum amount of needs and wants.
How is Scarcity illustrated in the PPC?
The unattainable combinations beyond the boundary of the PPC
Define limited resources
There is finite resources such as CELL and their quantity or quality is constrained by the given amount of resources at that time period.
How can you tell that an optimum decision in consumption or production has been made?
When MB=MC
Define comparative advantage
When a country has a lower opportunity cost at producing a good or service compared to another country
How is Productive Efficiency illustrated on the PPC?
When an economy produces any possible alternative combinations on the slope of the PPC, it is said to be productively efficient.
Explain the problem of scarcity
When there's limited resources but unlimited wants
What are the assumptions when drawing a PPC?
-The level of technology is constant -Fixed amount of factors of production -FOP are fully and efficiently utilised at the frontier -Only two good are produced
What are the choices that a producer have to make?
1. Decide on the type and quantity of goods to produce in order to maximise profitability 2. Decide on the method of production that maximise profitability 3. Decide on whom to produce the goods for inorder to achive maximum profitability (WHAT, HOW, WHOM)
Define actual growth
Actual increase in the production of goods and services
What key considerations does the inner circle of the decision making framework contain?
Constraints, Costs and benefits, Information, Perspectives
What are the economic agents?
Consumers, Producers, Governments
What choices does govt need to make?
Decide on how to reallocate resources to achieve higher societal welfare in terms of economic efficiency or equity
What choice does a consumer make?
Decide on the type and quantity to consume which gives them the highest utility (WHY)
Define unlimited wants
Desire for even higher consumption in order to maximise utility occurs when a particular level of consumption has been achieved.
How is allocative efficiency illustrated on the ppc?
Out of all the points on the PPc, only one point is said to be allocatively efficient. This point would depend on the consumption patterns of the society
Why is opportunity cost increasing?
The FOPs are not homogenous