Please enable JavaScript.
Coggle requires JavaScript to display documents.
Lesson 1 : Central Economic Problem - Coggle Diagram
Lesson 1 : Central Economic Problem
RESOURCES (4 factors of production (FOP) - Land, labour, entrepreneurship and capital
PPF curve
1) depicts the max combo of goods and svcs produced; given ALL resources fully utilized
2) Shows concepts of scarcity, choices and opportunity costs
Concave (The Law Of Increasing Opportunity Cost - slide 14) AND Constant opp cost
1) Movement of curve (from inside to outside -> better utilization of resources) -Points inside the curve = under utilized -Points outside the curve = scarcity - unattainable as resources are constant
2) Shift of curve
A movement from a point inside the PPF (e.g., Point E) to a point on the PPF (e.g., Point A) could be due to better utilization of resources as the economy recovers from a recession.
SHIFTING
OUTWARD
Increase in the QUANTITY of resources such as labour, land and capital
Increase in the QUALITY of resources such as through training and education
Increase in the level of TECHNOLOGY, results in better methods of production
More workers, Increase capital, etc
INWARD
Decrease in the QUANTITY of resources such as labour, land and capital
Decrease in the QUALITY of resources such as through training and education
Decrease in the level of TECHNOLOGY, results in better methods of production
Natural disasters, less skilled worckers, etc
REAL WORLD ECONOMY (affects only one good but not the other)
Capital Goods - Any kind of machinery, tools or equipment used to make something else. They are not use for immediate consumption e.g. Factory Machinery
Technological improvement that is specific to capital goods but not consumer goods
Consumer Goods - These are used for immediate consumption, which include food, clothing, and household appliances e.g. Clothes
Technological improvement that is specific to consumer goods but not capital goods
SCARCITY - Limited time and resources
CHOICES - make choices that are purposeful - try to get the most satisfactory from limited resources [rational behaviour]
OPPORTUNITY COST - Trade-offs involved. The cost of decision measured in terms of the next best alternative forgone
CONSTANT OPPORTUNITY COST
Straight Line PPF graph
The economy forgoes the same amount of one good (e.g. muffins) when producing more of the other (e.g. cupcakes).
Not realistic for entire economy because different resources are better suited for the production of different products.
Circular Flow Model
The figure illustrates how households and firms interact in the market economy Factors of production and goods and services flow in one direction Money flows in the opposite direction
Labour, land, capital, entrepreneurship
Households supply factors of production (labour, land, capital, entrepreneurship) to the factor markets, which then supply these FOPs to the firms.
Wages, rent, interest, profits
Firms pay money (wages, rents, interest and profits) to the FOPs, which is then channeled back to the households.
Goods and services
Firms supply goods and services to the goods markets, which then supply the goods and services to households.
Expenditure on goods and services
Households spend on goods and services in the goods markets. This expenditure is channeled into the firms as payment receipt.