Introduction to Economics and Basic Concepts
What this domain tests
The UP Intermediate Economics paper (Code 136) begins with scarcity, choice, opportunity cost, micro and macro distinctions, positive and normative analysis, and the production possibility frontier (PPF). Questions ask you to classify statements, calculate opportunity cost, and explain shifts versus movements.
Core rules
- Scarcity means limited resources relative to unlimited wants; it is not the same as a temporary shortage.
- Opportunity cost is the value of the next best alternative forgone.
- Microeconomics studies individual units; macroeconomics studies aggregates such as national income and general price level.
- Positive statements are testable; normative statements contain value judgements.
- A PPF shows maximum combinations of two goods with given resources and technology. Points inside are inefficient, on the curve efficient, outside unattainable.
- Movement along a PPF shows reallocation; a shift shows a change in capacity.
Worked example
A PPF gives (butter, guns) = (100,0), (90,10), (70,20). Moving from 0 to 10 guns costs 10 butter, so marginal opportunity cost is 1 butter per gun. The next 10 guns cost 20 butter, or 2 butter per gun. Rising marginal opportunity cost explains the concave shape.
Traps that cost marks
Do not call a point inside the PPF unattainable; it is inefficient. Do not treat a price rise as a PPF shift. Do not label “government should reduce inequality” as positive. Do not confuse economic goods with free goods.