Introduction to Microeconomics: Central Problems and Production Possibility Curve

Comprehensive vocabulary flashcards covering the introductory concepts of economics, positive versus normative analysis, micro versus macroeconomics, central problems of an economy, opportunity cost, and the production possibility frontier.

Economy

A system which provides people the means to work and earn a living.

Scarcity

A situation where the demand for a resource or good exceeds its available supply, meaning resources are limited in relation to human wants.

Economising of Resources

The optimum utilization of available scarce resources to ensure there is no wastage.

Economic Problem

The fundamental problem of choice arising from three basic facts: human wants are unlimited, resources to satisfy these wants are scarce, and resources have alternative uses.

Positive Economics

A branch of economics that deals with 'what is' or how economic problems are actually solved, based on facts and actual data, making it verifiable and free from value judgments.

Normative Economics

A branch of economics that deals with 'what ought to be' or 'what should be' and how problems should be solved, based on ideals, suggestive in nature, and involving value judgments.

Microeconomics

The branch of economics that studies the economic behavior of individual units of an economy, such as an individual consumer, household, or firm.

Macroeconomics

The branch of economics that studies economic issues and aggregates for the entire economy as a whole, such as national income and aggregate demand.

Price Theory

Another widely used name for Microeconomics, derived from its primary objective of determining commodity prices and prices of factors of production.

Income and Employment Theory

Another term for Macroeconomics, stemming from its central objective of determining aggregate national income and employment levels in the economy.

What to Produce

A central economic problem that involves deciding which possible goods and services to produce and in what specific quantities they should be produced.

How to Produce

A central economic problem that concerns selecting the production technique to be used, primarily choosing between labor-intensive and capital-intensive methods.

Labor-Intensive Technique

A production method that utilizes more human labor relative to machines or capital.

Capital-Intensive Technique

A production method that utilizes more capital and machinery relative to human labor.

For Whom to Produce

A central economic problem regarding the distribution of the final goods and services among the different individuals and sections of society.

Opportunity Cost

The cost of the next best alternative forgone when making an economic decision.

Production Possibility Frontier (PPF)

A graphical representation of the possible combinations of two goods that can be produced using available resources and given technology efficiently.

Transformation Curve

An alternate name for the Production Possibility Frontier (PPF) or Production Possibility Curve (PPC).

Marginal Opportunity Cost (MOC)

The number of units of one commodity sacrificed to gain one additional unit of another commodity.

Marginal Rate of Transformation (MRT)

The ratio that measures the rate at which units of one good are sacrificed to gain an additional unit of another good, given by $\frac{\Delta \text{Units Sacrificed}}{\Delta \text{Units Gained}}$.

Downward Slope of PPF

The property of the PPF indicating that to produce more of one good, the economy must sacrifice units of the other good due to limited resources.

Concave Shape of PPF

The characteristic shape of the PPF toward the origin caused by an increasing Marginal Rate of Transformation (MRT) as production shifts from one good to another.

Attainable Combinations

Production points that lie either on or inside the PPF, indicating output combinations that the economy has sufficient resources and technology to produce.

Unattainable Combinations

Production points located outside the boundary of the PPF that cannot be achieved with the existing level of resources and technology.

Shift in PPC

A physical displacement of the entire production possibility curve that occurs when there is an increase or decrease in resources or technology for both goods simultaneously.

Rotation in PPC

A pivot in the production possibility curve that occurs when changes in resources or technological efficiency affect only one of the two goods.