Resolving Scarcity

Basic Economic Problem  Allocation of a nation’s scarce resources between competing uses that represent infinite wants.  Trying to satisfy infinite needs and wants with scarce resources.

Basic Economic Problem  What to produce  How to produce  For whom to produce

Opportunity Cost  When choosing between competing choices, the opportunity cost is the benefit lost from the next best alternative.

Production Possibility Curve  A line which shows the different combination of two goods which can be produced if all resources are used efficiently.

Production Possibility Curve

 Inside your PPC – this means you have unemployed resources.  Outside your PPC – this is impossible.

PPC  Leftward Shift  Rightward shift

PPC  Leftward Shift  1. war  2. tsunami  3. natural resources run out  4. emigration  5. capital becomes outdated  Rightward shift  1. Discover new resources  2. labour becomes more productive  3. immigration (especially of skilled labour)  4. new technology.

Production Possibility Curve  Florida

Dominican Republic

Supply and demand

 Sometimes supply and demand (or the market economy) doesn’t work.  So, we need a Mixed Economy.

The Mixed Economy  An economy where goods and services are provided by both the private and public sector.

 Which of these goods and services would be provided by the public sector and which by the private sector?  1. international flights  2. intercity trains  3. primary school  4. dental care  5. shoes  6. the prison service  7. hotels  8. university education  9. mobile phones  10. banks

Two sectors of the Economy  Goods and services are provided by private individuals.  Goods and services are provided by the government.

Do markets work?  The government is not the solution to the problem, the government is the problem.  More money is spent researching baldness than researching malaria.

Why do we need a mixed economy?  Because of Market Failure.  Market failure is when markets lead to inefficiency.

Examples of market failure  1. Public goods – goods that will not be provided by the private sector.

Public goods

 2. Merit goods.  These goods are underprovided by the private sector.

A third example of market failure  3. Lack of competition

Competition

In what other markets might there be a lack of competition?

 Considering an economy of your choice, to what extent can it be considered a mixed economy?