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    Lecture 1 - Scarcity and Choice

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    tagashii
    Here is the production possibilities frontier (PPC) for the economy with 5 workers: Cakes 0 1 2 3 4 5 | | | | | | | | | | | | | | | | | | | | | | | | | 0 1 2 3 4 5 Shirts (i) The PPC shows the maximum combinations of cakes and shirts the economy can produce with 5 workers. (ii) If the economy was willing to do without shirts, it could produce 5 * 4 = 20 cakes

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    Lecture 1 - Scarcity and Choice

    Uploaded by

    tagashii
    327 views15 pages
    Here is the production possibilities frontier (PPC) for the economy with 5 workers: Cakes 0 1 2 3 4 5 | | | | | | | | | | | | | | | | | | | | | | | | | 0 1 2 3 4 5 Shirts (i) The PPC shows the maximum combinations of cakes and shirts the economy can produce with 5 workers. (ii) If the economy was willing to do without shirts, it could produce 5 * 4 = 20 cakes

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    BUSINESS ECONOMICS - Scarcity and Choice

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    Here is the production possibilities frontier (PPC) for the economy with 5 workers: Cakes 0 1 2 3 4 5 | | | | | | | | | | | | | | | | | | | | | | | | | 0 1 2 3 4 5 Shirts (i) The PPC shows the maximum combinations of cakes and shirts the economy can produce with 5 workers. (ii) If the economy was willing to do without shirts, it could produce 5 * 4 = 20 cakes

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    327 views15 pages

    Lecture 1 - Scarcity and Choice

    Uploaded by

    tagashii
    Here is the production possibilities frontier (PPC) for the economy with 5 workers: Cakes 0 1 2 3 4 5 | | | | | | | | | | | | | | | | | | | | | | | | | 0 1 2 3 4 5 Shirts (i) The PPC shows the maximum combinations of cakes and shirts the economy can produce with 5 workers. (ii) If the economy was willing to do without shirts, it could produce 5 * 4 = 20 cakes

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 15

    Dr Robin Nunkoo

    Associate Professor
    University of Mauritius
    r.nunkoo@uom.ac.mu
    THE SOURCE OF ECONOMIC
    PROBLEM:
    SCARCITY AND CHOICE
     ‘Economics is the study of how society
    decides what, how and for whom to produce.’
    (Begg & Fisher)

     Human behaviour in the production,


    exchange and use of goods and services
    Economic problem arise because:
     The production that can be obtained by
    fully utilizing all of a nation’s resources is
    insufficient to satisfy all the wants of the
    nation’s inhabitants

     Because resources are scarce it is necessary


    to choose among the alternative uses to
    which they could be put
     The central economic problem is how to
    reconcile the conflict between people wants
    and desires and the limited resources

     Economics explains how scarce resources are


    allocated between competing claims on their
    use
    Resources – 4 types
     Natural resources: Free gifts of nature such
    as land and fores
     Labour: Human resources, mental or
    physical
     Capital: Man made aids to further
    production such as tools, machinery and
    factories
     Entrepreneurship: One who undertakes
    tasks
    =
    FACTORS OF PRODUCTION
     Supplies of resources are sufficient to
    produce only a fraction of the goods and
    services that people desire

     Wants are unlimited while resources and


    limited

     Gives rise to the basic problem of scarcity


     Choices are necessary because resources of
    scarce

     Having more of one good means having less


    of another good

     Opportunity cost
     The opportunity cost of a good is the quantity
    of other goods which must be sacrificed to
    obtain another unit of that good

     Emphasize the need for choice


     Choice and opportunity cost can be better
    illustrated by the PPC
     The PPC shows, for each level of the output of
    one good, the maximum amount of the other
    good that can be produced
     Shows the maximum combinations of output
    that an economy can produce using all
    available resources
     Quantity of film output is measured on the X
    axis
     Quantity of food output is measured on the Y
    axis
     Any point of the diagram indicates some
    amount of each good produced
     PPC separates the attainable combinations
    such as A, B and C from unattainable
    combination such as D
     Negatively sloped because in a fully
    employed economy more of one good can
    be produced only if resources
     Point A and B represent efficient use of
    society’s resources
     Point C represents inefficient use of
    resources or a failure to use all resources
    that are available
    PPC illustrates:
     scarcity: unattainable combinations beyond
    the boundary
     Choice: the need to choose among the
    attainable points on the boundary
     Opportunity cost: the negative slope of the
    boundary which shows that obtaining more
    of one type of output requires having less
    of the other
     There are 5 workers in an economy. Each
    worker can produce either 4 cakes or 3
    shirts.
    (i) Draw the economy’s PPC
    (ii) How many cakes could society produce if
    it was willing to do without shirts?
    (iii) Indicate the points in your diagram that
    show inefficient organization of
    production
    (iv) Indicate those points on your diagram
    which are unattainable and explain why

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