The basic economic problem
What is scarcity ?
Scarcity is the condition where limited resources cannot satisfy unlimited wants.
Name the four factors of production.
Land, Labour, Capital, and Enterprise.
What is specialisation?
Concentrating on producing or selling a limited range of goods or services.
What does a PPC show?
Maximum possible output combinations.
What currency is used in most countries of the European Union?
The euro (€).
What is opportunity cost?
The next best alternative given up when making a choice.
What is the reward for labour?
Wages.
State one advantage of specialisation.
Increased productivity.
Increased productivity.
What does a point inside the PPC indicate?
Underutilized resources.
Which country is known for having the largest economy in the world by GDP?
United States.
Why do all economic agents have to make choices?
Because resources are limited while wants are unlimited.
Explain the difference between land and capital.
Land refers to natural resources, while capital refers to man-made resources used in production.
How does division of labour increase output?
Workers become more skilled and waste less time switching between tasks.
A country is operating on its PPC. The government wants to increase current consumption and investment at the same time. Why is this impossible without economic growth?
Since the economy is already using resources efficiently, increasing production of one category requires sacrificing another. Only economic growth (an outward shift of the PPC) allows both to increase simultaneously.
What does GDP stand for?
Gross Domestic Product — the total value of goods and services produced within a country in a given period.
A student has $20 and chooses to buy a textbook instead of going to the cinema. What is the opportunity cost?
The enjoyment and value of the cinema trip that was forgone.
A company buys another building to be able to hire more workers. What 2 factors of production were involved ?
Capital and Labour
Explain why countries benefit from specialising in products they can produce efficiently.
They can produce at lower cost, trade with other countries, and enjoy a greater variety of goods and services.
Why does the PPC usually have a curved shape?
Resources are not equally efficient in all uses, creating increasing opportunity costs.
During periods of high inflation, what monetary policy is a central bank most likely to use?
It is likely to increase interest rates to reduce spending and borrowing, helping to slow inflation.
Explain how scarcity leads to opportunity cost in an economy.
Since resources are limited, choosing one use for resources means sacrificing another. The value of the sacrificed alternative is the opportunity cost.
Why is enterprise considered a unique factor of production?
Entrepreneurs organize the other factors, make decisions, innovate, and take risks.
Evaluate whether specialization always benefits an economy.
Benefits include efficiency and output gains, but drawbacks include worker boredom, dependency, and structural unemployment.
Explain how technological progress can affect both the position and shape of a PPC.
It can shift the PPC outward and may affect one sector more than another, changing its shape.
67 pesos