Scarcity & Choices
What are the two main reasons scarcity occurs?
Unlimited wants and limited resources
True or False: Opportunity cost always involves spending money.
False. It can involve time, experiences, or other opportunities.
What does PPF stand for?
Production Possibility Frontier
What is scarcity?
The condition that exists because human wants exceed available resources
What does a point directly ON the PPF curve represent?
Productive efficiency
True or False: Scarcity only affects people who cannot afford basic necessities
False: Scarcity affects everybody
You decide to study for an exam instead of going to the movies. What is your opportunity cost?
The value of going to the movies, assuming it was your next-best alternative.
What does a PPF graph show?
The maximum possible combinations of two goods an economy can produce using available resources and technology.
What is opportunity cost?
The value of the next-best alternative given up when making a choice
What does a point INSIDE the PPF curve represent?
Inefficiency or underutilization of resources.
Why is time considered a scarse resource?
Because there are only 24 hours per day
Why does every economic decision involving scarce resources have an opportunity cost?
Because choosing one option means giving up the next-best alternative.
What do the X-axis and Y-axis represent on a PPF graph?
The quantities of two different goods or services.
What is productive efficiency?
A situation in which an economy produces the maximum possible output using its available resources
A country is using all its available resources efficiently to produce cars and computers. Where would its production fall?
On the curve
What is the difference between scarcity and a shortage?
Scarcity is the ongoing problem of limited resources relative to wants; a shortage occurs when quantity demanded exceeds quantity supplied at a particular price. Shortages are temporary
True or False: Opportunity cost includes the value of every alternative you didn't choose.
False. Only the next-best alternative.
Why can't an economy produce unlimited quantities of both goods shown on a PPF?
Because resources are scarce.
What is a sunk cost?
A previously incurred and irreversible cost.
Why is producing inside the PPF considered inefficient?
Because the economy could produce more with its existing resources and technology.
Why does economic growth not limit scarcity?
Because even as production increases, resources remain limited compared to unlimited wants.
A factory can produce either 80 trucks or 160 motorcycles. Assuming constant opportunity costs, what is the cost of producing one truck?
2 motorcycles. Since 160 รท 80 = 2, the resources needed to make 1 truck could instead make 2 motorcycles.
If an economy produces more of one good while remaining on its PPF, what generally happens to production of the other good?
It decreases
What are productive resources? (Examples)
Labor, tools, factories, and raw materials (water, wood, minerals, etc.).
What does a point OUTSIDE the PPF curve represent?
A production combination that is currently unattainable.