Describe difference between free goods and economic goods
-Free goods are plentiful and have no cost, such a wind and sunshine
-Economic goods are scarce and have a cost. Can be either consumer goods (sold for private use) or capital (producer) goods.
Main Concern of Economics
Trying to satisfy unlimited wants using scarce resources meant that a choice must be made. Results in choice and opourtunity cost.
Describe oppourtunitty cost
The oppourtunity cost is the next best alternative foregone when a decision is made ie the opportunity cost for a firm or local council is the goods and services that could have been produced using the same resources. Oppourtunity cost is a singular item.
Describe difference between capital and consumer goods.
-Capital goods are mann made goods that are used to produce other goods and services. Consumer goods are are sold too people for their own private use.
Describe the relationship between capital and consumer goods.
If a country produces more capital goods now then fewer consumer goods can be produced, and vice versa.
The production of capital goods will increase a country's future prooductive capacity, the production of consumer goods will increase a countrys standard of livingn now but is likely that the future output of its econoomy may fall.
What are the 3 assumptions of a PPC (production possibility curve).
Two goods only
Given level of technology
What does Production possibility curve show
Shows maximum output combinations using resources efficiently. It is not possibly to satusfy all wants so the ppc reflects scarcity.
Straight Line PPC
Shows resources are equally suited to either good. ie resources are completely interchangeable. The oppourtunity cost of producing additional units is unchanged ie is a constant.
Condition of limited resources to satisfy unlimited wants
Resources fully emplyed and put to their best possible use. Any point on the PPC.
Production efficiency as well as a combination of goods/services that consumers actually want. Allocative efficiency reflects the desiress of society to allocate resources to where they are most suited.
Bowed outwards PPC
Reflects the law of diminishing returns, incresing oppourtunity cost as you move from one end of the curvev to the other.
Shows that resources are moree suite to production of one good that another.