The basic economic problem is that human wants are unlimited while resources are scarce. This means that societies must make choices about how to allocate scarce resources between alternative uses to best satisfy people's needs and wants. The opportunity cost of a choice is the value of the best alternative forgone, or what is given up by making that choice. Production possibility curves illustrate this problem by showing the tradeoffs involved - producing more of one good requires producing less of another since resources are limited.
1. “Economics is the
science which studies
human behaviour as a
relationship between
ends and scarce
resources which have
alternative uses”
Lionel Robbins (1935)
11. The basic economic problem
Human wants are unlimited but resources are scarce
12. Problem 1: Resources are Scarce
Resources (factors of production) are used up
in production of goods and services to satisfy
our wants.
Resources that are not scarce are called free
goods.
14. Discussion:
What do we all want?
List your top 5 wants
right now and then
we’ll discuss.
15. Problem 2: Human wants are
unlimited
Our wants are without limit and many of them
cannot be satisfied.
This is because there are simply not enough
resources to make all the goods and services
we want and need.
17. Task 1 : Goods/Services
MATCH THE TERMS
WITH THE DEFINTIONS.
Complete part 1 of
Worksheet 1.
18. Problem 3: Scare resources have
alternative uses
Wants unlimited but resources are scarce.
People, nations and the world must therefore
choose how scarce resources are to be used.
Opportunity cost!
19. 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.
Resource allocation therefore involves deciding how best to use
scarce resources to satisfy as many needs and wants as possible
CHOICE CHOICE
Problem 3: Scare resources
have alternative uses
20. Choice
Similarly, people and governments only have a limited amount
of money but have many needs and wants to satisfy
$100
Food? Entertainment?
Clothing?
Defence? Health care?
Roads?
$100bn
21. Handout H5 – Dam and NHS
• What is the economic problem in each of
the articles?
• For each decision described in the articles,
what is being sacrificed and why?
• Who are the winners and who are the losers
from these decisions?
22. Put yourself in this man’s
shoes…
• You are the UK Chancellor of the Exchequer.
Last year he spent £710bn, now it is your turn,
will you spend it differently?
28. Defined:
The opportunity cost of a choice is the value
of the best alternative forgone.
= The value of what you have given up.
“If you spent the money on an original iPod
in 2001 on Apple stock ($499), you would have
$14,513.78 today” (2010).
29. Have you made a choice that had
an alternative recently?
30.
31. Your Task: Debate
UAE is hosting the 2020
Expo.
Design a poster that’s divided
in two to indicate:
Positives (Group 1)
and
Negatives (Group 2).
Build the economic problem
and opportunity cost into your
design.
32. 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?
33. 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
35. An economy producing
consumer goods and capital
goods
What is the opportunity cost of
producing 15 more tonnes of
consumer goods?
Production possibility curves
