Key Concepts
What is scarcity?
Limited sources and unlimited wants
What does PPC stand for?
Production Possibility Curve
What usually happens to demand when price falls?
Demand Increases
What are the main functions of money?
Medium of exchange, store of value, unit of account.
What is meant by productive efficiency?
Producing at the lowest possible cost.
What are the 4 factors of production?
Land, Labour, Capital, and Enterprise
What happens to opportunity cost as more resources are moved to one good?
Opportunity cost increases.
What is equilibrium price?
The price where demand equals supply.
What is division of labour?
Workers specialize in specific tasks.
If PED is greater than 1, demand is described as what?
Price elastic
What is opportunity cost?
The next best alternative given up.
Give one example of capital as a factor of production.
Machinery, tools, or factories.
What does PED measure?
Responsiveness of demand to a price change.
What is the equation for/what is total revenue?
Price × Quantity sold.
Why are public goods considered a market failure?
Because private firms may not provide them since people can use them without paying.
Why does every economy face the basic economic problem?
Because resources are limited but wants are unlimited.
What does a shift outward of a PPC show?
Economic growth or increased resources.
Explain one reason why supply may increase.
Lower production costs, subsidies, or improved technology.
What is a monopoly?
A market with one dominant seller.
Explain one reason why supply may decrease.
Higher production costs, taxes, or fewer firms in the market.
What does a point inside a PPC show?
Unemployment or inefficient use of resources.
Explain why opportunity cost increases on a PPC.
Resources are not equally efficient in producing all goods, so more resources must be sacrificed.
Why can market failure occur in a free market economy?
Because resources may be overproduced or underproduced, causing inefficient allocation.
What is one advantage of large-scale production?
Economies of scale/lower average costs.
A product has PED of -2. What does this mean?
A 1% increase in price causes a 2% decrease in quantity demanded.