Central problem of economics quiz

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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


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