1.Basic Economics Concepts Flashcards

Flashcards for Basic Economics Concepts

What is opportunity cost?

The benefit of the next best alternative foregone.

What is scarcity?

The excess of human wants over the resources required to fulfill them.

What is Technical Efficiency?

Maximise output for given inputs

What is Allocative Efficiency?

Optimal distribution of goods and services that meets the needs and wants of society.

What is Pareto Efficiency?

A position where you cannot make one person better off without making someone else worse off.

What is Pareto Improvement?

You can make someone better off without making someone else worse off.

What two concepts underlie all of economics?

Limited resources and unlimited wants.

List 'Inputs' in an economy.

Land, Labour, and Capital (manufactured items used in production, productivity of which is limited by technology)

What are the 7 unique aspects of health in the context of health as a good?

1. No exchange value 2. Uncertainty 3. Specialist knowledge 4. Source of Value 5. Caring externalities 6. Subject to external shocks 7. Presence of externalities

On a PPF, what do points A, B, C, D, and E mean?

A - Economy producing only good A; B - Underemployment of some resource; C - Combination of allocating all resources to producing both good A and B; D - Economy producing only good B; E - Not feasible given current resources and/or state of technology

What can cause growth in potential output?

Investment (capital and/or labor), Technological Advances, Discovery of new resources, Education + training

What does the PPF show?

All combinations of producing good A and B that lead to maximum production given that all resources are fully employed (technically feasible).

Explain why the PPF is concave to the origin.

Due to increasing opportunity costs of production: additional production of one good requires ever-increasing sacrifices of the other because you are using resources that are less suitable as you switch from one good to another.

How would you show an increase in potential output and an increase in actual output on a PPF?

An increase in potential output is shown by the PPF shifting outwards. An increase in actual output is movement from within the PPF to closer to the PPF.