B220 Microeconomics - Central Economic Problem Practice Flashcards

Vocabulary-style flashcards covering definitions, factors of production, the Production Possibility Frontier (PPF), and the circular flow model based on the microeconomics lecture notes.

Economics

Social science that studies the relationship between consumers’ unlimited wants and limited resources.

Needs

What we must have to survive, such as food, shelter, and clothing.

Wants

Goods or services not necessary for immediate survival, such as televisions and mobile phones.

Land

Everything that grows on land or is found under it, including oil, fish, and minerals.

Capital

Physical factors of production like factories, machinery, and infrastructure such as roads and buildings.

Entrepreneurship

The organizing and risk-taking factor of production that organizes land, labour, and capital to produce goods and services.

Labour

The human factor of production, for example, workers.

Scarcity

The condition resulting from limited time and resources being insufficient to satisfy unlimited wants.

Rational Behaviour

Making purposeful choices to try to get the most satisfaction from limited resources.

Opportunity Cost

The cost of a decision measured in terms of the next best alternative forgone.

Utility

The satisfaction levels that individuals make choices to maximize.

Production Possibility Frontier (PPF)

A curve that shows the maximum combinations of goods and services that can be produced by an economy in a given time period, given all resources are fully utilized.

Points outside PPF

Represent scarcity; these points are unattainable given constant technology and resources in the economy.

Points within PPF

Represent actual output where resources are currently being under-utilized in the economy.

Points on PPF

Represent potential output and the optimal utilization of resources.

Increasing Opportunity Cost

The reason why the PPF is a concave curve, occurring because not all resources are equally suited at producing different goods.

Constant Opportunity Cost

Occurs when the economy forgoes the same amount of one good when producing more of the other, though it is not realistic for an entire economy.

Economic Growth

Represented by an outward shift of the PPF, caused by increases in the quantity, quality, or technology of resources.

Capital Goods

Any kind of machinery, tools, or equipment used to make something else; they are not used for immediate consumption.

Consumer Goods

Goods used for immediate consumption, which include food, clothing, and household appliances.

Circular Flow Model

A model illustrating how households and firms interact, where money flows in the opposite direction to factors of production and goods.

Factor Markets

The arena where households supply factors of production like labour, land, capital, and entrepreneurship to firms.

Goods Markets

The arena where firms supply goods and services to households.