Introduction Test - 15

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.

The most common reason a PPF would shift is because of a change in technology, or because of economic growth.

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.