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Reasons for Choice
Economic Terminology
| Question | Answer |
|---|---|
| What is Economics? | We can't have everything we want (scarcity) so we have to make choices. Economics studys how society makes these choices. In other words, economics is the study of how society decides what, how and for whom to produce. |
| What is an Economy? | An economy is the total of all activities relating to production, distribution, exchange and consumption of goods and services in a particular region. The total output of an economy is its Gross Domestic Product. |
| What is the basic or central economic problem? | Given resources are finite (limited means i.e. scarcity exists), all wants or desires cannot be satisfied (unlimited wants). So the problem is how to determine what to produce. Its about choice in the face of scarcity! |
| Given the existence of scarcity, what are the three fundamental questions all societies must address? | 1) What gets produced 2) How is it produced 3) Who gets what is produced |
| What are Factors of Production? | 1) Land 2) Labour 3) Capital |
| How is Land defined? | Land is a catchall phrase & represents everything not man-made. Land = the natural resources available for production including the site of production, mineral deposits, water & even the air. Every artefact is made by using natural resources. |
| How is Labour defined? | Labour is the human input used to produce goods and services. Everything people do to convert natural resources into human satisfactions, intellectual or physical or both, is labour. People use capital on land to produce goods and services. |
| How is Capital defined? | Capital has many meanings, including the financial capital (money) invested in a business. But mostly, "capital" (without any qualification) means goods (e.g. machines) that can help produce other goods (e.g. cars). |
| What does specialisation mean in an economic sense? | Specialisation in an economic sense is related to efficieny: It refers to economic agents focusing on the things they do best. (Consider division of labour, comparative advantage, Gains from Trade) |
| What is Opportunity Cost? Give an example in consumption. | It expresses the idea behind scarcity and choice. E.g. I only have 15 Euro: I can buy a CD or a DVD, I can't buy both. If I buy the DVD the opportunity cost of the DVD is the CD I didn't buy, and vice-versa. |
| What is Opportunity Cost? Give an example in production. | It expresses the idea behind scarcity and choice. E.g. with limited resources build a boat or a house: you can't build both. If you build the house, the opportunity cost of the house is the boat that did not get built and vice-versa. |
| What is a Production Possibility Frontier (PPF)? - also known as a Production Possibility Curve (PPC). | The PPF is a graph showing the different rates of production of 2 goods and/or services that an economy can produce with a limited quantity of productive resources (i.e. factors of production). |
Created by:
onestonel
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