The economic problem

• What is the concept of opportunity cost in economics?


  Opportunity cost is the value a person could have received but gave up to commit to a different option.
• Give an example of opportunity cost.

  Giving up revision to go play football, where revision is the opportunity cost.
• How does opportunity cost relate to economic agents' decisions?

  • Economic agents must choose between alternatives.
  • Every decision made has an opportunity cost.
  • Basing decisions on positive statements can lead to certain outcomes.
• How can opportunity cost be used to analyze trade between companies?

  It helps determine the best resource allocation based on the costs of trading different goods.
• What is the implication of a company needing 3 bananas to gain 1 fish?

  It suggests that the company would be better off gathering bananas rather than trading for fish.
• What is the benefit of specialization among businesses?

  Specialization allows businesses to gather more resources they need in less time.
• What does economic activity involve?

  Combining all the factors of production to create an output that people can consume
• What is the purpose of economic activity?

  To increase people's economic welfare and satisfy their needs and wants
• How is economic welfare defined?


  The standard of living of an individual or group
• What are the three participants in the economy referred to as?

  Economic agents
• Who are the three economic agents?

  Producers, consumers, and government
• What is the role of producers in the economy?

  Firms or people that make goods or provide services
• What is the role of consumers in the economy?

  People or firms who buy the goods and services
• What is the role of government in the economy?

  Sets rules for other participants and also produces and consumes goods and services
• How do economic agents affect resource allocation?

  They make decisions that influence how resources are allocated
• What decisions do producers have to make?

  What to make and how much they are willing to sell it for
• What decisions do consumers have to make?


  What they want to buy and how much they will pay for it
• What decisions do governments have to make?

  How much to intervene in the way producers and consumers act
• What are the three economic incentives in the economy?

  1. What to produce: Goods that firms can make a profit from
  2. How to produce it: In the most efficient way to maximize profits
  3. Who to produce it for: Consumers who are willing to pay for those goods
• What are the resources used by firms to produce goods and services called?

  Factors of production
• What are factor inputs?

  They are the resources inputted into the production process
• What are the four factors of production?

  • Capital
  • Enterprise
  • Labor
  • Land
• What production factor is linked to rent?

  Land
• What production factor is linked to wages?

  Labor
• What production factor is linked to interest?

  Capital
• What production factor is linked to profit?

  Enterprise
• What are the components involved in producing a textbook?

  • Capital: axe, printer, computer
  • Enterprise: AQA, lumberjack companies
  • Labor: lumberjack, author, illustrator, professors, producers, editors
  • Land: forest for paper, factory for production
• What does labor include in the economy?

  All of the workforce
• What makes every worker unique?


  Each worker provides a unique set of skills, qualifications, and experience
• What is the value of a worker called?

  Human capital
• How can a worker be valued?

  By the income they earn
• How can education and training affect human capital?

  They are likely to increase human capital
• What can cause a shift in the product possibility fronteries graph

  PPF shifts outwards if theirs increase rescourses, improved technology could have more output with the same rescoures, economic growth would have an outwards shift, if rescourses are limited it could shrink in on itself
• Explain the PPF graph 

   

  Explanation- Line a to be is the maximum amount of each product a business can produce at one time. At point a the business has the maximum of good x but they have no good y at point b. If its below the middle arrow the business is producing the maximum of good x and good y simultaneously. The middle section with the arrows is the level the business could expand to in a years time if they increase efficiency but only under the conditions that something changes. Points C and D are the same as point A and B but display a point where the growth has occurred. 

   

  
• Types of oppurtunity cost

  -Financial

  -Time based

  -Career