Scarcity
- Refers to the situation where limited resources available are unable to satisfy the unlimited human wants
- Scarcity not equal to shortage, which is just a temporary shortfall in supply of the market that can be solved over time
Unlimited Human Wants
- Human desire for ever higher levels of consumptions. Desires increase over time. When old wants are satisfied, new wants are created
Factors of Production (i) Land
- natural resources made available to mankind by nature (ii) Labour - all human efforts, both physical and mental (iii) Capital
- man-made physical assets that aid in current production (iv) Entrepreneurship
- human resource that organizes land, labour and capital in production
Choice
- Because of scarcity, resources have alternative uses.
- Choices have to be made to maximize use of resources for highest level of satisfaction
- 3 Fundamental Question: (i) What and how much to produce?
(ii) How to produce?
(iii) For whom to produce?
Opportunity Cost
- When a choice is made, there will be an opportunity cost incurred
- The opportunity cost refers to the next best possible choice
- Law of Increasing Opportunity Cost is derived from the fact that resources present in the economy are not perfectly homogeneous
- Law of Increasing Opportunity Cost states that as more of a particular good is produced, larger and larger amount of the alternative good must be sacrificed
Production Possibility Curve
- Shows all the different maximum attainable combinations of goods and services that can be produced in an economy, given that all available resources are fully and efficiently used at a given state of technology
Two Important Points on PPC
(i) Within PPC
- Attainable but inefficient combinations
- Resources not fully used or used efficiently
- Underemployment or Unemployment
(ii) Outside of PPC
- Unattainable combination
- Cannot be achieved with current amount of resources and level of technology
- Scarcity
Economic Growth (i) Actual Growth - Expansion in current output
- Movement within the PPC
- Achieved by encouraging greater use of resources or reducing unemployment/underemployment
(ii) Potential Growth
- Expansion of productive capabilities of the economy over time
- Stretching of PPC
- Increase in quantity of available resources and improvement in quality of the existing resources
- Increase in quantity ---> e.g. Encouraging Population Growth
---> e.g. Increased production of capital goods
- Improvement in quality ---> Providing Skills training
---> Greater spending on research
- Refers to the situation where limited resources available are unable to satisfy the unlimited human wants
- Scarcity not equal to shortage, which is just a temporary shortfall in supply of the market that can be solved over time
Unlimited Human Wants
- Human desire for ever higher levels of consumptions. Desires increase over time. When old wants are satisfied, new wants are created
Factors of Production
(i) Land
- natural resources made available to mankind by nature
(ii) Labour
- all human efforts, both physical and mental
(iii) Capital
- man-made physical assets that aid in current production
(iv) Entrepreneurship
- human resource that organizes land, labour and capital in production
Choice
- Because of scarcity, resources have alternative uses.
- Choices have to be made to maximize use of resources for highest level of satisfaction
- 3 Fundamental Question: (i) What and how much to produce?
(ii) How to produce?
(iii) For whom to produce?
Opportunity Cost
- When a choice is made, there will be an opportunity cost incurred
- The opportunity cost refers to the next best possible choice
- Law of Increasing Opportunity Cost is derived from the fact that resources present in the economy are not perfectly homogeneous
- Law of Increasing Opportunity Cost states that as more of a particular good is produced, larger and larger amount of the alternative good must be sacrificed
Production Possibility Curve
- Shows all the different maximum attainable combinations of goods and services that can be produced in an economy, given that all available resources are fully and efficiently used at a given state of technology
Two Important Points on PPC
(i) Within PPC
- Attainable but inefficient combinations
- Resources not fully used or used efficiently
- Underemployment or Unemployment
(ii) Outside of PPC
- Unattainable combination
- Cannot be achieved with current amount of resources and level of technology
- Scarcity
Economic Growth
(i) Actual Growth
- Expansion in current output
- Movement within the PPC
- Achieved by encouraging greater use of resources or reducing unemployment/underemployment
(ii) Potential Growth
- Expansion of productive capabilities of the economy over time
- Stretching of PPC
- Increase in quantity of available resources and improvement in quality of the existing resources
- Increase in quantity ---> e.g. Encouraging Population Growth
---> e.g. Increased production of capital goods
- Improvement in quality ---> Providing Skills training
---> Greater spending on research