1.1 Scarcity choice, and opportunity cost

Flashcards based on lecture notes covering scarcity, choice, opportunity cost, and resource allocation.

What is scarcity in economics?

The condition where available resources are insufficient to satisfy all human wants and needs.

What are the three types of resources in economics?

Natural resources, human resources, and capital.

Why is scarcity a universal economic problem?

Because even the wealthiest societies must decide how to allocate their resources due to unlimited wants and limited means.

Name four reasons why resources are limited.

Physical limitations, unsustainable usage, technological and human capacity, and distribution and accessibility.

How does scarcity influence economic systems?

It leads to the existence of different economic systems like capitalism and socialism, which provide frameworks for resource allocation.

How does scarcity lead to innovation and efficiency?

It drives societies to use resources more efficiently or find alternatives due to limited availability.

What is opportunity cost?

The value of the best alternative that is given up when a choice is made.

How do firms make choices?

Firms encounter decisions concerning product development, technological adoption, and resource allocation. These choices are primarily driven by factors like market demand, cost structures, and strategic objectives.

What factors influence economic choices?

The availability and accessibility of resources, cultural values, and distinct economic objectives.

Who dictates economic decisions in market economies?

The interplay of supply and demand.

What is product diversification?

A complex decision involving evaluating market trends, consumer preferences, production and R&D costs, and potential impacts on existing product lines.

Define opportunity cost.

The value of the best alternative that is given up when a choice is made, encompassing not just financial costs but any resource.

How is opportunity cost used in economic planning and policymaking?

To guide resource allocation, drive cost-benefit analyses, and shape economic policies.

In national budget allocation, what is the opportunity cost of investing in renewable energy?

The short-term economic stability that could be achieved with fossil fuels.

What are the three fundamental questions in resource allocation?

What to produce, how to produce, and for whom to produce.

What factors influence production choices?

Resource availability, consumer preferences, and technological capabilities.

What factors determine production methods?

Resource efficiency, cost and quality balance, and environmental concerns.

What factors influence resource allocation?

Income and wealth distribution, cultural and social norms, and government intervention.

What is the role of the government in mixed economies regarding resource allocation?

Governments intervene to varying degrees in economic decisions, often to regulate or provide public goods.

How do the questions of what, how, and for whom to produce get answered in market economies?

By the forces of supply and demand. Consumer preferences, along with producers' profit motives, drive these decisions.