Tuesday, August 24, 2004

LE 1: (A)Intro to Econs (B)Scarcities & Choice

BASIC ECONOMIC PROBLEMS

OVERVIEW:

*Scarcity
-Unlimited Wants
-Limited Resources
-Types of Commodity
-The Economic Problem
*Economic Systems
-Market Economies
-Command Economies
-Mixed Economies
*Economic Goals
-High level of Employment
-Price stability
-Efficiency
-Equitable income distribution
-Growth

*Rational Choice

*Branch of Economy

-Microeconomics
-Macroeconomics

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(B)SCARCITY & CHOICE

OVERVIEW:

*Resources
-Land
-Labour
-Capital

*Production Possibilities Curve (PPC)
-Any point on the PPC = production possiblity
-Any point inside PPC = waste / under-utlised
-Any point outside PPC = Impossibility
-PPC shift outwards = productivity capacity increase
-PPC shift inwards = productivity capacity decrease

*Opportunity Cost

*Specialization
-Absolute advantage
-Comparative advantage
-Economy of Scale
high output = lower cost = narrow variety
low output = high cost = wide variety

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REVIEW QUESTIONS:
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Q1.


(a) PPC shows what is the desireable qty of each goods to produce.
(b) PPC shows what is the qty of A & B we can produce given resources & prevailing technology.
(c) we can produce 100 unit of A and 50 unit of B.
(d) X is a production possibility
(e) Y indicates under-utilization of resource.
(f) It is possible to produce at point Y.
(g) It is possible to produce at point Z
(h) we can produce 20 units of A & 40 units of B.
(i) At point X, what is the oppportunity cost of producing 20 units of B

Q2.
You can plant either Crop A (100 tons) or Crop B (80 tons).

(a) What is the opportunity cost of planting A?
(b) What is the opportunity cost of planting B?
(c) Which crop has higher opportunity cost?
(d) Which crop would you plant?

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