economics

the study of scarcity and choice

scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants

4 resources used to produce goods and services

land, labor, capital, entrepreneurship

land

resources that come from nature

labor

effort of workers

capital

goods used to produce other goods

entrepreneurship

organizational skills, motivation and risk taking needed to produce

marginal decisions

when the costs and benefits of adding 1 more additional unit of production or labor are carefully analyzed

opportunity cost

the real cost of an item; what you give up (the next best alternative) in order to get it

trade-off

when you give up something in order to have something else

purpose of PPC graph

to improve our understandings of trade-offs by considering a simplified economy that produces only 2 goods, this enables us to show the trade-offs graphically

what is an inefficient point on a PPC graph?

one where the resources are not being used in the best way possible

what can allow production outside of the curve?

economic growth

Any point inside a production possibilities curve is?

associated with inefficient use or unemployment of some resources

A production possibilities curve that is concave to the origin (bowed out) implies that as more of a good is produced, the opportunity cost...?

increases

Assume an economy produces two goods, capital goods and consumer goods. If the production of capital goods increases in the current period, which of the following will occur for the current and future production possibilities curve (PPC)(PPC) for consumer goods and capital goods?

A movement along the current PPC and a rightward shift of the future PPC

The opportunity cost of an activity is...?

the value of the forgone benefit of the next best alternative

What is the most fundamental issue that economics addresses?

Scarcity