Basic Economic Problems 2 1 3 Opportunity cost

Basic Economic Problems 2 1. 3 Opportunity cost, 1. 4 Production possibility curve diagrams (PPC)

1. 3 Opportunity cost, Opportunity cost is what has to be foregone in order to obtain something else. We need to consider opportunity cost when making economic choices, in terms of money. Opportunity cost can be consider when we use our time. For Example, when one buys a music CD at $20, the opportunity cost is the next best alternative of what he could have bough with the $20. Free goods and Economic goods Free goods have no Opportunity cost Economic goods have opportunity cost. There is a price involved and they are limited in supply. Public goods and private goods Public goods are goods that no one can be excluded from using and more than one can use a public goods at the same time. The non-excludability feature of public goods gives rise to the free-rider problem – people want to use public goods but refuse to pay for them. Private goods are anything that are priced and excludable 3/1/2021 Mohammad Ziaul Alam, HOD, Econmics & Bangladesh Studies 2

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1. 4 Production possibility curve diagrams (PPC) The production possibility curve (PPC) shows whether a country is using the most efficient way to allocate its limited resources to produce any two goods. The PPC can illustrate three concepts of unlimited wants, scarcity and choice. As far as possible, the government would like to produce the maximum quantity of both good X and good Y to satisfy unlimited wants. However, with the problem of scarcity , the government has to make a choice. The government can choose any possible combination of goods on the PPC or inside the PPC. Good y 11 10 8 ppc 6 4 0 3/1/2021 6 10 15 18 20 Good x In the figure-some of the possible combination are • 11 unit good Y and 0 units of good X • 10 unit good Y and 6 units of good X • 8 unit good Y and 10 units of good X • 6 unit good Y and 15 units of good X • 4 unit good Y and 18 units of good X • 0 unit good Y and 20 units of good X Mohammad Ziaul Alam, HOD, Econmics & Bangladesh Studies 4

1. 4 Production possibility curve diagrams (PPC) …. . Any combination outside the ppc is unattainable. However. The ppc can shift outwards. The outward shift of ppc means that the country has achieved economic growth. Some possible reasons for outward shift of a country’s PPC are – • The discovery of new resources such as a new oilfield • Increase in labour productivity • Advances in technology • Employment of foreign workers. Good y Ppc 2 Ppc 1 0 Good x 3/1/2021 Mohammad Ziaul Alam, HOD, Econmics & Bangladesh Studies 5

Interpretation of PPC at Different combination 3/1/2021 Mohammad Ziaul Alam, HOD, Econmics & Bangladesh Studies 6

Economic efficiency and PPC Point A, B, D, E, F – Efficient as they are on the PPC. Point P – Inefficient due to under utilization of resources Point G, C, H – Currently inefficient because they are unattainable but these can be efficient over time by increasing production capacity. 3/1/2021 Mohammad Ziaul Alam, HOD, Econmics & Bangladesh Studies 7

Movement of PPC 3/1/2021 Mohammad Ziaul Alam, HOD, Econmics & Bangladesh Studies 8

Past paper Questions 1. (a) Explain the concept of opportunity cost. [5] 2 (c) Explain what is meant by (i) an opportunity cost and (ii) a social benefit. [4] 3 In Zimbabwe a local community markets a tea which grows wild in their area. ‘Communities should be able to manage their natural resources if they are to benefit, especially if they are to gain an economic benefit, ’ the leader of the project said. (a) Identify the factors of production. [4] (b) Explain what benefits might be gained by the local community in Zimbabwe from the project. [6] (c) Tea is also grown and sold by large companies. Explain how this might affect the market for the local community’s tea. [4] 4. (a) Explain how the principle of opportunity cost might be relevant when a person chooses a new job. [3] 5 (a) Describe, with the use of examples, two factors of production. [4] (b) Explain what is meant by the economic problem and why opportunity cost is relevant to the allocation of resources. [6] 6 Production involves the use of the four factors of production. The use of these resources involves an opportunity cost. (a) Using appropriate examples, describe the four factors of production. [6] (b) Using a production possibility curve, explain what is meant by opportunity cost. [6] (c) Discuss whether more factors of production should be used to build houses. [8] 3/1/2021 Mohammad Ziaul Alam, HOD, Econmics & Bangladesh Studies 9

Source / References 1. Cambridge O level Economics By Susan Grant 2. Edexcel IGCSE Economic By Rob Jones 3. Economics IGCSE Revision guide By Brian Titley with Halen Carrier 4. Economics for IGCSE 5. Economics GCSE(9 -1) By Robert Dransfield, Terry cook, Jane King By Rob Jones 6. Economics for IGCSE and O level By Moynihan and Titley 3/1/2021 Mohammad Ziaul Alam, HOD, Economics & Bangladesh Studies 10