The Basic Economic Problem and PPFs

Review and revise week 1 + EconplusDal vids, including the basic economic problem and PPFs

economics is a…

social science

positive statements

these can be either proved or disproved using data.

normative statements

these are based on value statements or opinions, these cannot be proved/disproved with data.

the basic economic problem

how to allocate scarce resources given unlimited wants

4 factors of production

CELL, capital, enterprise, land and labour

opportunity cost

the cost of the next best alternative forgone when a choice is made

land

physical space and natural resources

labour

the energy and skills of the workforce

capital

man made aids to production

enterprise

risk taking and organization by entrepreneurs

needs

basic survival kit

wants

the infinite number of items we would like to have.

what does a production possibility frontier show

the maximum combinations of the two goods that an economy can produce from a given set of resources while assuming technology stays the same

all points of the ppf

product efficiency - all resources are being used fully and efficiently - the economy cannot increase output of one good without decreasing output of another

all points inside the ppf

UNEMPLOYED RESOURCES / INEFFICIENCY

all points beyond the ppf

impossible to reach given current resources

what determines the position of a ppf

the position of the ppf is determined by the quantity and quality of factors of production available

an outward shift of the ppf is used to indicate

economic growth (an expansion of the productive potential of an economy)

investment in …… generates the most economic growth

capital

how does changes in technology in one industry affect the ppf

ceteris paribus

all else remains the same

substitute goods

complementary goods