The problem of scarcity Finite resources (land, labour, capital and enterprise), Needs (physical: water, food, warmth, shelter, clothing...), Wants (a better house, a better laptop, a better car...), Infinite wants (demand) > Finite resources (supply) = BASIC ECONOMIC PROBLEM (The problem of scarcity)

The three most important decisions that have to be made: - What to produce (which goods)? - How to produce (different production methods)? - For whom to produce (distribution between members of the population)?

Opportunity cost Decision makers (individuals, producers) are faced with different choices. They don’t have enough money to buy everything they want, so they choose just one thing they need the most. The benefit lost from the next best alternative given up is callled the opportunity cost.

Production possibility curves (PPC) PPC is the line that shows the different combinations of two goods an economy can produce if all resources are used up. A point outside the graph is unachievable and a point inside the graph is inefficient at that moment.

A Typical PPC Unattainable Inefficient

Production Possibilities/ Opportunity cost Slide 9 A = 24 kg of coffee B = 16 kg of cofee & 4 units of computers C = 8 kg of cofee and 8 Computers D = 12 units of Computer Coffee (kg/day) Computers (unit/day) A B C D Opportunity cost of 4 computers= ? Another 4 Computers= ? Hence Opportunity cost is same

Economic growth Economic growth is an increase in the amount of goods and service by a nation over a period of time (positive economic growth). Factors that cause economic growth to happen: -new technology (faster and more reliable production), -improved efficiency (more efficient methods like kaizen and lean production), -education and training (more productive economy = more educated workers), -new resources (USA fracking example). Negative economic growth is the fall of one country’s productive potential.

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