Test: Introduction To Economics - 4

Allocation of resource means distribution of resource. Distribution of resource means factory of production i.e land, labour , capital and entreprenureship . so allocation of resource result in production of goods and services

For whom to produce refers to selection of the category of people who will ultimately consume the goods, i.e. whether to produce goods for more poor and less rich or more rich and less poor. Since resources are scarce in every economy, no society can satisfy all the wants of its people.

Positive economics is the branch of economics that concerns the description and explanation of economic phenomena. It focuses on facts and cause-and-effect behavioral relationships and includes the development and testing of economics theories.

The term Micro Economics is derived from the Greek work “Mikros” which means “Small”. Micro economics gives a detailed analysis of one part of the economy or society. It studies the behaviour of individual units of the economy, such as households, firms, industries and markets.

Microeconomics is a branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms

Normative economic analysis refers to the analysis in which we study whether a particular mechanism is desirable or not. In this analysis, we study what ought to be the desired situation or in what ways the economic problems should be solved. In other words, it is concerned with what should be and what should not be, and what is desirable and what is not? 

Opportunity cost, also known as alternative cost, is the value (not a benefit) of the choice of a best alternative cost while making a decision. A choice needs to be made between several mutually exclusive alternatives; assuming the best choice is made, it is the "cost" incurred by not enjoying the benefit that would have been had by taking the second best available choice.

A household consists of one or more people who live in the same dwelling and share meals. It may also consist of a single family or another group of people.

Technology means the correct proportion in which the different factors of production are to be employed. There are two types of techniques. A labour-intensive technique would employ relatively more labour and less capital. On the other hand, capital- intensive technique means more capital and less labour.The context of how to produce is  ‘which techniques are to be adopted’? 

The quantity in which a commodity is to be produced is set at that level where demand equals supply. If quality produced is more or less, then there will be dis equilibrium in the market and price will fluctuate. Hence, to maintain stable equilibrium price it becomes necessary to make demand and supply equal. 

The economic problem – sometimes called the basic or central economic problem – asserts that an economy's finite resources are insufficient to satisfy all human wants and needs. It assumes that human wants are unlimited, but the means to satisfy human wants are scarce.

The movement along the PPC from left to right shows that in order to produce more units of capital goods, the economy must sacrifice some amount of consumer goods.

It reflects that as the output of good X is increased,the output of goodY is decreasing. Therefore the shape of ppc becomes concave to the origin. The slope of ppc shows increasing moc which tends to rise when resources are shifted from the production of one good to another .

A capital good is a durable good that is used in the production of goods or services. Capital goods are one of the three types of producer goods, the other two being land and labour which are also known collectively as primary factors of production.

Microeconomics is the social science that studies the implications of individual human action, specifically about how those decisions affect the utilization and distribution of scarce resources. Microeconomics shows how and why different goods have different values, how individuals make more efficient or more productive decisions, and how individuals best coordinate and cooperate with one another.

The labor surplus economy model has as its basic premise the inability of unskilled agricultural labor markets to clear in countries with high man/land ratios. In such situations, the marginal product of laboris likely to fall below a bargaining wage, related to the average rather than the marginal product.

Capital surplus is a term used by economists to denote capital inflows in excess of capital outflows on a country's balance of payment's.

Economic problem arises mainly due to two reasons- (i) human wants are unlimited (ii) means to satisfy human wants are scarce. The problem of scarcity is faced by an individual and the society. With wants unlimited and resources scarce, our wants cannot be fulfilled. 

Technology is the advancement of the society as a whole. Better technology means that you can figure out more efficient production techniques thereby leading the economy to create a scope to move the PPC further to the right.

When all resources are employed on ideal situation, production can take place on PPC

Positive economics is objective and fact based, statements do not have to be correct, but they must be able to be tested and proved or disproved.

Normative economics  is a part of economics that expresses value or normative judgments about economic fairness or what the outcome of the economy or goals of public policy ought to be.

A PPF graph shows the maximum production level for one commodity for any production level of the other commodity. A point below the curve signifies inefficiency.

A production possibilities frontier (PPF) is a diagram that illustrates the possible production points for an economy based on its resources and technology.Production points on a PPF are possible and efficient. Production points on a PPF represent efficient use of all of the economy’s resources.

Points outside the PPF are unattainable production points given current resources and technologies. It is impossible for an economy to produce outside its PPF. The PPF can change, however, with changes in resources or technology.