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Micro-economics: Scarcity and choice 2…
Micro-economics: Scarcity and choice 2
Free goods:
are goods that do not use up any factor inputs when supplied.
Free goods have a zero opportunity cost i.e the marginal cost of supplying and extra unit of a free good is zero.
Understanding the PPF
combination of the output of consumer and capital goods lying inside the PPF happen when there are unemployed resources or when resources are used ineffectively. we could increase total output of goods and services by moving towards the PPF
Combination of goods and services that lie beyond the PPF are unattainable at the moment
a country would require an increase in factor resources, an increase in productivity and an improvement in technology to achieve an outward shift of the PPF
trade between countries also allows nations to consume beyond they own PPF potentially leading to gains ins economic welfare
Economic problem:
the problem is entered around the basis that the economy's finite resources are insufficient to meet the demands of the unlimited wants and needs of the consumers.
Production Possibility Frontier:
A graph showing the maximum combinations of goods and services that can be produced in a set period of time given available resources.
Opportunity cost: In decision making the value of the next best thing is lost
These arise in situations of scarcity, you reject the next alternative due to limited resources available such as finance
Trade off: A trade off arises where having more of one thing potentially results in having less of another
Goods and services
Consumer goods: These are goods and services which satisfy the needs and wants of consumers. Consumer durables are products that offer steady flow of satisfaction. Consumer non-durables are used up in the act of consumption. consumer services are services such as a hair cut.
Capital goods: These are goods that are used to make consumer goods. capital inputs include machinery , hardware, factories and buildings.
Productivity:
measures the efficiency of the production process.
Factor Inputs + Factor Productivity = Output of goods and services
Money and Exchange
: Acts as a standard of differed payment. Contracts are usually agreed in terms of a money value. Money has become the medium of exchange as it is valued by both parties.
Barter system:
people exchange goods and services in return for goods and services.