Lesson at a glance
- Scarcity: Scarcity refers to the limitation of supply in relation to demand for a commodity. It refers to the situation, when wants exceed the available resources. As a result, goods are not readily available and society does not have enough resources to satisfy all the wants of its people. Scarcity is pervasive, i.e. each and every economy and individual faces scarcity of resources. A scare resource is the one, for which the demand at zero would exceed the available supply.
- Central Problems: Economic problem is the problem of choice. The problem of choice has to be faced by every economy of the world, whether developed or developing. Human beings have
wants which are unlimited. When these wants get satisfied, new wants multiply at a fast rate. The economic resources to satisfy these unlimited wants are limited.
The three main causes of central problems are:
- Human wants are unlimited: Human beings have wants which are unlimited. Human wants get satisfied by consuming goods and service, but new wants keep arising.
- Economic resources are limited: These resources are limited in supply in relation to their demand. Scarcity is the basic feature of every economy. No economy can be self-sufficient in everything. Scarcity is a universal phenomenon which continues indefinitely. The scarcity of resources creates economic problems for every country in the world.
- Resources have alternative uses: The resources are not only scarce in supply but they also have alternative use. For example, land can be used to produce wheat or rice or build a hospital or a school. A choice between the alternative uses of land has to be made. This problem of choice leads to economic problems.
Opportunity Cost: Opportunity cost is defined as the cost of alternative opportunity given up or surrendered. For example, on a piece of land both wheat and sugarcane can be grown with the same resources. If wheat is grown then opportunity cost of producing wheat is the quantity of sugarcane given up.
Production Possibility Curve: Meaning: Production possibility set refers to different combinations of two goods that can be produced from a given amount of resource and a given stock of technological knowledge.
Basic Properties/shape of PPc:
Production possibility curve slopes downward to the left
Production possibility curve is concave to the point origin.
Shift in PPc
The PPC can shift either towards right or towards left, when there is change in resources or technology with respect to both the goods.
(a) Rightward Shift in PPC: When there is the advancement of technology or/and increase in availability of resources in respect to both the goods, then we can produce more of both the goods. Accordingly, PPC will shift to the right.
(b) Leftward Shift in PPC: PPC will shift to the left when there is a technological degradation and/or decrease in resources with respect to both the goods. For example, destruction of resources in an earthquake will reduce the productive capacity and as a result, PPC will shift to the left.
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