Econs Chapter 2 (module 1)

ECONS CHAPTER 2 (MODULE 1)

Revision Questions (Q1-3, 5, 7)

What do economists mean by scarcity? Think of anything that is not scarce according to the economic definition.

Scarcity is the situation in which wants exceed the limited resources available to fulfill those wants. Ultimately, all things are scarce, as they are in limited supply. Some things at a point in time are relatively scarcer than others. For example, oxygen in the air is generally available and is less scarce than pink diamonds.

What is production possibility frontier? How can we show economic efficiency on a PPF? What causes PPF to shift outward?

The production possibility frontier is a curve showing all the attainable combinations of two products that may be produced with available resources. Combinations of goods that are on the frontier are efficient because all available resources are being fully utilized, and the fewest possible resources are being used to produce a given amount of output. Inefficiency is shown by points inside the production possibility frontier, because the maximum output is not being obtained from the available resources. A production possibility frontier will shift outwards if the amount of resources available for making the products rises (capital, machinery, labor) or if technology improves so that we can make more output with the initial amount of inputs.

What is meant by increasing marginal opportunity costs?

What are the implications of this idea for the shape of the PPF?

Increasing marginal opportunity costs means that as more and more of a product is made, the opportunity cost of making each additional unit rises. It occurs because the first units of a good are made with the resources