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H2 Econs: The Central Economic Problem Cheat Sheet (DRAFT) by

This is a draft cheat sheet. It is a work in progress and is not finished yet.

Key Words

Scarcity
Unlimited wants that cannot be fulfilled by limited resources.
Opport­unity Cost
Value of the next best altern­ative forgone when a choice is made.
Consumer Goods
Enables customers to derive direct satisf­action.
Capital Goods
Used to make consumer goods.
Free Goods
Naturally in abundant supply, needing no conscious effort to obtain. eg. air
Economic Goods
Consumable item, relatively scarce.
Productive Efficiency
Economy produces maximum output for a given amount of inputs. All points on the PPC are produc­tively efficient.
Allocative Efficiency
Economy produces optimal amount of goods and services economy desires (depends on focus of economy). Only 1 point on the PPC is allocative efficient.
Actual Economic Growth
Rate at which economy grew over the past year.
Potential Economic Growth
Increase in productive capacity of economy.
Margin­alist Principle
States that an economic agent should pursue an activity up to the point MB=MC
 

The Productive Possib­ilities Curve (PPC)

Assump­tions of the PPC
1. All available resources are fixed in amount.
2. Within a given period of time, level of technology remains constant.
3. Only 2 goods are being produced.
4. Resources are fully and effici­ently employed.

The PPC illust­rates 3 concepts:
1. Scarcity
- Indicated by unatta­inable combin­ations (due to limited conditions and lacking state of techno­logy) beyond boundary.

2. Choice
- Productive and allocative effici­ency.
ref. to Key Words

3. Opport­unity Cost
- Increasing opport­unity cost gives a concave shape.
- Constant opport­unity cost gives a straight, downward sloping line.
- Decreasing opport­unity cost gives a convex shape.

PPC Curve