Scarcity and Factors of Production
True or False: Scarcity is a temporary situation where goods are unavailable at current prices
False: That is a shortage, scarcity is permanent
What is the term for the most desirable alternative given up when you make a decision?
Opportunity Cost
What does a point plotted directly on the production possibilities frontier (ppf) represent?
Efficiency
A delivery truck owned by Amazon is classified under which factor of production?
Physical Capital
What fundamental condition about resources drives the entire field of economics.
Scarcity! Unlimited wants vs limited resources
Name the four factors of production
Capital, Entrepreneurship, Land and Labor (CELL)
Deciding whether to study for one extra hour or go to sleep is an example of doing what?
Thinking at the margin
What state is an economy in if it is operating inside (below) its production possibilities frontier.
Underutilization
Due to severe freeze, oranges are temporarily out of stock at the grocery store. Is this an example of scarcity or shortage?
Shortage
Is a doctor’s medical knowledge considered Physical Capital, Human Capital or Labor?
Human Capital
A worker taking an advanced coding workshop is an example of investing in what specific type of capital?
Human Capital (knowledge and skill)
What do economists call all the alternative options given up when a choice is made?
Trade-offs
What does law of increasing cost state?
As production shifts from one item to another, more and more resources are needed to increase production of the second item, causing opportunity costs to rise
A factory lays off 30% of its staff and turns off half its machines, temporarily. Where would this factories production now be plotted on a PPC graph.
Inside the curve(to the left) underutilization
What does a point outside/beyond the PPF curve represent?
An unattainable production level at current resource. Future possibilities with increase of resources
Why are natural resources like crude oil or timber categorized under the ‘land’ factor of production?
They are naturally occurring resources used to produce goods and services.
What rule must be true for a rational person to proceed with a decision when weighing marginal costs and marginal benefits?
Marginal benefit must be greater than or equal to marginal costs
Name two distinct factors that would cause an entire PPF graph to shift outward (to the right)?
Advances in tech, growth in labor force size, discovery of new natural resources, or better work training
A country decides to shift resources from consumer goods (‘butter’) to military goods (‘guns’) What happens to the opportunity cost of each additional unit of military goods produced?
It increases; due to the Law of Increasing Costs
If a baker buys a second commercial oven to bake more bread, has it added to its land, labor or physical capital?
Physical Capital
What is the primary role of an Entrepreneur in a market economy?
To combine land, labor and capital to create new goods or services while taking on financial risk.
If a student chooses between going to work ($15), studying for a test, or going to the movies, what is the opportunity cost if they choose the movies and their #2 choice was work?
$15/hr wages lost from work.
Why does a Production Possibilities Curve bow outward rather than forming a straight line?
Because resources are specialized and not easily adaptable to producing all types of goods. Causing an opportunity cost of each additional unit to rise
A new AI technology allows workers to produce double the amount of microchips in half the time. What happens to the country’s PPF for electronics.
It shifts outward/to the right = economic growth
If a country reallocates workers from farming wheat to producing cars without getting new workers or technology, does the PPC graph shift outwards, inward, or experience movement along the existing curve?
Movement along existing curve. No shift