Introduction to Economics: Micro vs Macro and Production Possibility Curve (PPC) - Flashcards

A set of practice Q/A flashcards covering core concepts from the lecture notes: micro vs macro economics, scarcity, factors of production, PPC, and shifts in PPC.

What is economics as defined in the notes?

The social science that studies how economic agents use their limited resources to satisfy their unlimited wants.

Who are the economic agents mentioned in the notes?

Households, firms, and government.

What are scarce resources?

Resources that are available but limited; they can’t satisfy all wants.

What are the three basic economic concepts listed in the notes?

Scarcity, Choice, and Opportunity Cost.

What is microeconomics?

Focus on the behaviour of economic agents in a specific market.

What is macroeconomics?

The study of the economy as a whole, including unemployment, causes, and aggregate demand.

What are the four factors of production (f.o.p.)?

Land, Labour, Capital, and Entrepreneur.

What is the reward for Land in the f.o.p.?

Rent.

What is the reward for Labour in the f.o.p.?

Wages.

What is the reward for Capital in the f.o.p.?

Interest.

What is the reward for the Entrepreneur in the f.o.p.?

Profit.

What does it mean for production to be capital intensive?

Production that relies heavily on machinery and equipment.

What does it mean for production to be labour intensive?

Production that relies heavily on labour.

What are the three fundamental questions society must answer for production?

What to produce and how much to produce? How to produce? For whom to produce?

What is opportunity cost?

The next best alternative forgone when a choice is made; every choice involves a trade-off.

What is a Production Possibility Curve (PPC)?

A graph showing the various possible combinations of two goods a country can produce given its resources and technology, illustrating the three basic concepts.

What does a point on the PPC represent?

An attainable combination given available resources and technology, with resource use potentially fully utilized.

What does a shift outward of the PPC indicate?

Economic growth: improvements in technology or increases in resources.

What does a shift inward of the PPC indicate?

Economic decline: technology decline or depletion/increase in scarce resources.

What shapes represent increasing, decreasing, and constant opportunity cost on the PPC?

Increasing OC: concave to the origin (bowed outward); Decreasing OC: convex to the origin (bowed inward); Constant OC: straight line.

What does moving from one point to another on the PPC illustrate?

Opportunity cost or trade-off between the two goods being produced.

What does shifting one edge of the PPC mean?

Resources for one good improve or decline while the resources for the other good remain unchanged.

How is per unit opportunity cost calculated between two PPC points (e.g., A and B)?

Sacrifice divided by Gain. Example: if moving from A to B foregoes 20 pizzas to gain 60 roast chickens, OC per roast chicken = 20/60 = 0.333 pizzas.

What is the meaning of points A–E on the PPC (in general)?

Attainable points where resources are fully utilized; movement between points shows the opportunity cost.

What causes a PPC to shift outward (growth factors)?

Improvement in technology; larger or more productive labor force; new resources discovered.

What causes a PPC to shift inward (decline factors)?

Technology decline; decrease in the size of the labor force; depletion of non-renewable resources.

What does ‘For whom to produce?’ address?

How the goods and services will be distributed among the people in the economy.

What does ‘What to produce and how much to produce?’ address?

Given scarce resources, what goods and how many units should be produced.

What does ‘How to produce?’ describe?

The method of production: capital intensive vs. labour intensive.

What are the four resources’ rewards and their corresponding factors of production?

Land – rent; Labour – wages; Capital – interest; Entrepreneur – profit.

What is the example context given for micro vs macro questions in the notes?

Micro: How Grab adjusts fares in response to higher fuel costs or how car price/demand reacts to taxes. Macro: unemployment rate and its causes; aggregate demand when policy rates change (e.g., OPR).