Chapter 1 Economic problem The economic problem is

Chapter 1 Economic problem The economic problem is a problem of the scarcity of the available resources essential for the satisfaction of human wants. Scarcity : is a relationship between how much there is of something and how much of it is wanted. Scarcity mean the interaction of unlimited wants with limited resources , has been called the economic problem.

§ Resources are scarce compared to all of the uses we have for them. Scarce goods versus free goods : Free goods would mean that you could have all you want of everything without having to give up something else you also want. Choice : Scarcity implies that choices must be made , and making choices implies the existence of costs.

Opportunity cost : Is the value of the forgone alternative that you gave up when you got something. The production possibilities frontier ( PPF ) : It shows the maximum output that can be produced in an economy at any given moment , given the resources available. If an economy is fully utilizing its resources then it will be producing on the PPF. The PPF illustrates the concept of opportunity costs.

An outward shift of the frontier might be due to : - More training of employees. - Greater investment in capital goods. - An increase in the population size. - Improvements in technology.