Factors of Production
A small bakery hires an extra assistant to help knead dough during peak hours. Which factor of production is being increased?
Labour
A student chooses to spend two hours working part-time instead of revising for an exam. What is the opportunity cost of this decision?
The potential exam improvement that was foregone.
A country produces only food and clothing. It decides to produce more food, but clothing output decreases. What does this movement along the PPC represent?
A reallocation of resources with opportunity cost – more of one good means less of the other.
A single restaurant raises prices due to higher demand. Is this a microeconomic or macroeconomic issue, and why?
Microeconomic – it deals with pricing decisions by an individual firm.
In a market economy, prices of goods like masks increased sharply during a pandemic. What role did prices play in resource allocation?
They acted as signals and incentives for producers to increase supply.
A farmer installs a solar-powered irrigation system. Which factor of production has been improved, and why is it considered this type?
Capital – it is a man-made aid to production that increases efficiency.
A government must choose between building a dam or funding rural schools. What does this scenario highlight about opportunity cost in public spending?
The resources used on one project mean the benefits of the other are sacrificed.
An earthquake destroys several factories and farms. How would this affect the country's PPC?
The PPC would shift inward due to a loss of productive capacity.
The national unemployment rate rises sharply during a global recession. Is this a micro or macroeconomic issue?
Macroeconomic – it affects the economy as a whole.
A command economy directs factories to produce 10,000 tractors, regardless of market demand. What problem might this lead to in resource allocation?
Misallocation – resources may be used inefficiently, leading to surplus or shortages.
A start-up founder takes out a loan and risks personal savings to develop a new education app. What factor of production does this illustrate, and why?
Enterprise – the individual takes on financial risk and organizes the other factors.
A mobile phone producer shifts resources to produce more high-end phones and fewer budget models. What is the opportunity cost in this scenario?
The revenue and market share lost from producing fewer budget phones.
A government invests in healthcare and education, improving worker health and skills. What long-term effect could this have on the PPC?
The PPC would shift outward, showing economic growth from improved human capital.
A consumer decides to switch from buying brand-name cereal to a store brand due to a price change. What type of economic behavior is this, and what field studies it?
Microeconomic – it involves individual consumer choices.
A developing country subsidizes renewable energy firms to shift production away from coal. What type of resource allocation method is being used?
Government intervention in a mixed economy to influence production priorities.
A construction firm delays a project due to rising land prices in the city center. How does this relate to the factors of production?
Land – the cost of natural resources (like land) affects production decisions.
A developing country exports raw minerals instead of processing them into finished goods. What is the long-term opportunity cost of this decision?
The value added and employment potential from domestic processing industries.
Two economies have identical PPCs, but one operates on the curve while the other operates inside it. What does this suggest about their efficiency?
The economy inside the curve is underutilizing resources; the other is efficient.
A central bank lowers interest rates to boost investment. Explain how this macroeconomic policy might affect firms at the micro level.
Lower interest rates may reduce borrowing costs, encouraging firms to expand and hire more workers.
A market for luxury goods sees high prices and high profits. How does this affect how resources are allocated?
More resources are attracted to the sector due to the profit motive, potentially away from essential goods.
A new AI system replaces 10 human workers in a packaging plant. Which two factors of production are involved, and how is one substituting for the other?
Capital is substituting for labour by replacing human effort with machinery.
During a crisis, a hospital allocates ICU beds only to patients with the highest survival chances. How does opportunity cost explain this decision?
The opportunity cost is the treatment foregone for patients with lower chances of survival.
A country can produce either clean energy or military equipment. Over time, it reallocates more resources toward clean energy. What kind of shift or movement does this represent on the PPC?
Movement along the PPC, reflecting a change in production priorities and opportunity cost.
A rise in income tax affects both household consumption and business profits. How does this illustrate the interaction of micro and macroeconomics?
Macro-level tax policy has ripple effects on microeconomic behaviors like spending and investment.
In response to rising food prices, the government imposes a maximum price on basic goods. What is a likely consequence for resource allocation?
It could lead to shortages, as suppliers may reduce production due to lower profitability.