Key Concepts
What does "ceteris paribus" mean in economics?
"All other things being equal"
Why is scarcity considered the central problem in economics?
Because resources are limited but wants are unlimited.
Define opportunity cost.
The value of the next best alternative forgone.
What does a point on the PPC represent?
Efficient use of resources.
Name the four factors of production.
Land, Labour, Capital, Entrepreneurship.
What are the four types of economic resources?
Land, Labour, Capital, Entrepreneurship.
What is a trade-off? Give an example.
Giving up one thing to gain another; e.g., studying vs. working.
How is opportunity cost different from a trade-off?
Trade-offs are all options; opportunity cost is the most valuable one forgone.
Name 2 causes of the PPC to shift outward?
More resources, better technology, improved productivity.
Match each factor with its income type.
Land → Rent, Labour → Wages, Capital → Interest, Entrepreneurship → Profit.
What is the difference between productive and allocative efficiency?
Productive = lowest cost; Allocative = best mix for society.
What are the three basic economic questions?
What to produce? How to produce? For whom to produce
What is the Opportunity cost of choosing to study instead of working?
Lost income from not working.
What does a point inside the PPC indicate?
Underutilisation or unemployment.
Name 2 x roles of entrepreneurship in production?
Organises resources, takes risks, drives innovation.
Define "economic growth" and name one way it can occur.
Growth is an increase in GDP; it can occur via better technology or more resources.
How does scarcity lead to opportunity cost?
Scarcity forces choices, and each choice has a next-best alternative forgone.
Why is opportunity cost important for governments?
It helps evaluate the real cost of policy decisions.
Explain an asymmetric shift in the PPC
Only one sector improves, e.g., tech boosts energy but not agriculture.
Give an Example of each factor in a bakery?
Land = shop, Labour = bakers, Capital = ovens, Entrepreneurship = owner.
Why do economists use models and assumptions?
To simplify complex realities and focus on key relationships.
Give a Real-world example of scarcity affecting government decisions?
Choosing between funding hospitals or highways due to limited budget.
Explain using the PPC, Opportunity Cost.
Moving along the curve shows what must be given up to produce more of another good.
How does the PPC show scarcity, choice, and opportunity cost?
Limited combinations force choices; each choice has a cost.
How do households and businesses interact in the circular flow?
Households provide resources; businesses pay income and sell goods.