1.3-1.4 The Nature of Economics

What are Renewable resources?

Resources that replenish themselves naturally at least as fast as they are used, so they can be used indefinitely.

What are the two types of renewable resources?

Flow and Biological

Flow resource definition. (+ examples)

Using them today does not reduce tomorrow’s supply.

• solar, wind, hydro, geothermal

Biological resource definition. (+ examples)

Renewable only if managed sustainably.

• forests, fish, soil

Non-renewable resources definition.

A finite stock that formed of millions of years and cannot be replaced on a human timescale.

Every unit used today is one fewer for the future.

What are the types of Non-renewable resources?

• Fossil fuels

• Minerals

• Metals

Examples of Fossil fuels.

• crude oil

• natural gas

• coal

Examples of Minerals and Metals.

• iron ore

• copper

• lithium

• gold

Why do economists care if a resource is renewable?

• opportunity cost across time

• sustainability

• rising prices of scarce resources encourages substitutes and efficiency - government taxes fossil fuels and subsidised wind and solar

What does a PPF show?

The maximum combinations of two goods an economy can produce when all its resources are fully and efficiently employed, with current technology.

What does a PPF assume?

• only two goods (or two types of goods)

• fixed quantity and quality of factors of production

• fixed technology

• all resources fully used

On a PPF, what is on the x and y axis?

x - Consumer goods (units)

y - Capital goods (units)

On a PPF, what does inside the frontier represent?

Attainable but inefficient.

• unemployed/ idle resources

On a PPF, what does on the frontier represent?

Maximum productive potential.

On a PPF, what does outside the frontier represent?

Unattainable with current resources.

What does a bowed-out PPF show?

Increasing opportunity cost.

Why is the PPF concave?

Resources are not equally suited to both goods.

What does a straight-line PPF show?

Constant opportunity cost.

What does an outward shift on a PPF show?

Economic growth. (Higher productive potential)

What causes an outward shift on a PPF?

More factors (quantity), or better factors (quality).

What causes an inward shift on a PPF?

Economic decline. (Lower productive potential)

What causes Economic decline?

• War or natural disaster destroying capital

• brain drain/ emigration

• depletion of non-renewable resources

• a pandemic reducing the workforce

• prolonged under-investment so capital wears out faster than it is replaced

What changes when there is movement along a PPF?

The combination of goods produced.