The nature of the economic problem
The basic economic problem
Scarcity: limited resources cannot satisfy unlimited human wants.
Identify 4 factors of production
Land, labour, capital, enterprise
Define opportunity cost.
The next best alternative forgone.
Define PPC.
A curve that shows the maximum output combinations of two goods or services that can be produced with existing resources and technology being fully and efficiently used.
The difference between goods and services
Goods are tangible, whereas services are intangible.
Identify rewards for the 4 factors of production.
Wages for labour. Profit for enterprise. Rent for land. Interest for capital.
What is the difference between free goods and economic goods?
Free goods do not require resources to produce and so do not have O.C.
Economic goods require resources to produce and so have O.C.
What does a point on the PPC represent?
All existing resources are fully and efficiently used. It leads to maximum output and efficient production.
The difference between needs and wants
Needs are G&S required for survival, whereas wants are G&S that are NOT essential for survival.
What may influence the mobility of labour?
Education and re-training opportunities increase workers' skills, which increase workers' occupational mobility.
Cost of relocation, transport links and family ties affect workers' geographical mobility.
Explain one possible O.C. for firms if they invest in the latest technology.
They may not be able to buy good quality raw materials and so sacrificing the quality of their product.
Why is PPC bowed outwards?
Because of the increasing O.C.
Is land mobile or not?
Most land is geographically immobile since it is fixed in one place. Some forms of lans such as wildlife can be moved from one place to another.
Land is occupationally mobile, e.g. can be used for farming or housing.
The government always considers O.C. when making a decision on spending money to maximise the welfare of the society. E.g. If the government spends on building a new hospital, the O.C. may be building a new school.
What does a movement along a PPC represent?
Reallocation of resources.
What may affect the quantity of enterprise?
Lower taxes on firms profits, and a reduction in government regulations would increase quantity of enterprise.
A student decides to take up a two-year apprenticeship for which she will earn $10000 per year. After that she expects to earn $25000 per year. She could take an unskilled job which pays $16000 per year instead of the apprenticeship. What is the O.C. in the two years of completing the apprenticeship?
Draw a PPC diagram that shows a discovery of new resources.
Shift to the right.