Scarcity, choice and opportunity cost
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The economic problem
- Scarcity is the inability of available resources to meet every competing desired use. It applies to time and productive resources, not just money or low incomes. The unlimited-wants model describes continuing competing claims, not a requirement that each person desires infinite quantities of every item.
- The introductory distinction calls needs essential requirements and wants non-essential desires. Needs, priorities and the goods that meet them vary over time and context. In broader economic language, wants can include desired necessities; willingness alone is not effective demand without ability to pay.
Identify the scarce constraint
Three basic questions
- What to produce concerns the output mix; how to produce concerns methods and resources; for whom concerns distribution of the output or its benefits. All economic systems face these choices because resources have competing uses.
- Scarcity is the reason for these allocation questions, rather than a fourth question itself. The decision about the method can involve labour, equipment, cost, environmental effects and the quality people need, not just the fastest output.
Opportunity cost
- Opportunity cost is the value of the next-best feasible alternative forgone. State the constraint and establish the alternative; do not assume a hospital automatically sacrifices a school if the latter was not the next-best feasible project.
- Fictional council clinic-versus-library choice: with one site and a budget sufficient for either and the library ranked next, choosing the clinic forgoes the library’s benefit. Opportunity cost can be monetary or non-monetary; avoid adding a cash outlay and the identical forgone benefit as though they were separate sacrifices.
A fictional council choice
Production possibility frontier (PPF)
- A PPF shows maximum production combinations for two outputs with given resources, technology and period. Interior points can reflect idle or inefficiently used resources; outside points are currently infeasible as production. A frontier point is productively efficient, not necessarily allocatively preferred or fair.
- Along fictional Food = 100 − Cars, moving (40,60) to (60,40) gains 20 cars and forgoes 20 food units. A capacity shift to Food = 120 − Cars differs from moving actual output toward the existing frontier. Production capacity is distinct from consumption possibilities when trade is available.
- In a separate curved model, Food = 100 − 0.01 × Cars² gives (20,96), (40,84) and (60,64). Successive extra 20-car blocks cost 12 then 20 food units, illustrating increasing opportunity cost. The plotted range is 0 to 100 cars; no measured economy is represented.
A fictional straight PPF
Economic agents
- Consumers or households, producers or firms, and government are main decision-making groups in this introductory framework. People can occupy several roles, such as being a worker and a consumer; the labels are not separate species of people.
- Their decisions interact through resource use, income, buying, production and public policy. Households can supply labour and buy outputs, firms use inputs and provide goods or services, and government can purchase, tax, regulate or supply.
Economic groups make linked choices
Rational choice
- A rational-choice model assumes agents compare perceived benefits and costs to pursue their objectives within constraints. Objectives can include enjoyment, care for others or environmental benefits, rather than money or selfishness alone.
- Real people may face incomplete information, uncertainty, habits and biases. Explain the model as a tool and test it against evidence instead of asserting that everyone always calculates every choice perfectly.
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Câu hỏi luyện tập
Xem trước miễn phí — 8 trên 34 câu hỏi. Đăng ký để xem tất cả.
1.In the introductory distinction between essential needs and non-essential wants, which definition fits a want?
Easy- Asomething people desire but do not need to survive
- Bfood
- Cwater
- Dshelter
2.What is an economic need?
Easy- Aa new phone
- Ba holiday
- Ca luxury
- Dsomething essential for survival
3.What does the economic problem refer to?
Easy- Atoo many firms
- Bno choices
- Cscarcity of resources
- Dtoo much money
4.What are the three basic economic questions?
Easy- Abuy, sell, save
- Bwhat, how and for whom to produce
- Cwho, when and where
- Dwhy, how and when
5.What does a PPF show?
Easy- Amaximum feasible combinations of two outputs with given resources and technology
- Bprices
- Cwages
- Dprofits
6.A point inside the PPF means:
Easy- Amaximum efficiency
- Bunattainable output
- Cgrowth
- Dsome resources are unused or inefficiently used
7.A point outside the PPF means:
Easy- Ait is wasteful
- Bit is normal
- Cit is unattainable with current resources
- Dit is efficient
8.What does an outward shift of the PPF show?
Easy- Afewer resources
- Bgrowth in potential productive capacity
- Ca recession
- Dscarcity ending
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