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    Basic Economic Problems

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    Aditya Ghosh

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    Basic Economic Problems

    Uploaded by

    Aditya Ghosh
    77 views11 pages

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    © © All Rights Reserved

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    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    77 views11 pages

    Basic Economic Problems

    Uploaded by

    Aditya Ghosh

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 11

    S1

    IGCSE®/O Level Economics

    1.1 The basic economic


    problem

    © Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
    Factors of production
    • Natural resources = land
    • Man-made resources = capital
    • Human skills and effort = labour
    • Business know-how = enterprise

    © Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
    Production

    Using inputs (resources) to make outputs (goods and


    services) to satisfy the needs and wants of consumers

    © Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
    Consumption

    Using up goods and services (products) to satisfy


    consumers’ needs and wants

    © Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
    The basic economic problem

    Human wants are unlimited but resources are scarce

    © Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
    So, we all have to make choices
    There is a limited amount of resources such as raw materials,
    machines, factories and skilled workers. But there are a number
    of different ways in which they can be used.

    CHOIC C E
    E CHOI

    Resource allocation therefore involves deciding how best to use


    scarce resources to satisfy as many needs and wants as possible

    © Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
    Choice
    Similarly, people and governments only have a limited amount
    of money but have many needs and wants to satisfy

    $100bn
    $100

    Food? Entertainment? Defence? Health care?

    Roads?
    Clothing?

    © Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
    Opportunity cost
    Opportunity cost is the cost of choice

    • What would you buy with US$10?


    • How should the government spend US$250 million?
    (Or, should the government cut taxes by US$250 million?)
    • What occupation will you choose when you finish your studies?
    • How should a new business invest US$20 million?
    • Should we conserve more natural resources?

    … and what are the next best alternatives foregone?

    © Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
    Production possibility curves
    A firm producing cars and trucks
    What is the opportunity cost of producing 20 more trucks?

    © Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
    Production possibility curves
    An economy producing
    consumer goods and capital
    goods
    What is the opportunity cost of
    producing 15 more tonnes of
    consumer goods?

    © Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
    Production possibility curves
    • Production possibility curves (PPCs) show the maximum
    combined output of two or more products a firm or an entire
    economy can produce with its available resources

    • Resources are being used efficiently if they are producing their


    maximum output

    • But, because resources are limited, producing more of one


    product means producing less of another

    • PPCs are therefore a useful way of showing the opportunity cost


    of producing more of one product in terms of how much of
    another must be given up

    © Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute

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