An explanation of the economic problem of unlimited wants, limited resources, scarcity, choice and opportunity cost
Relate to a two good model of the economy, using a PPC.
Draw a PPC diagram to expalin the concept
Explain free market economy and a centrally-planned economy
Differentiate between these two systems keeping in view the three questions.
While explaining -what to produce?
Free market economy, decided by consumer sovereignty/demand – in a centrally-planned economy, decided by the central planners, based upon their view of what is appropriate
How to produce?
Free market economy, decided by cost of production and attempts to minimize unit costs of production/maximizing profit – in a centrally-planned economy, decided by the central planners based upon desired production targets
Whom to produce?
Free market economy, decided by income/ability to pay – in a centrally-planned economy, determined by perceived needs in the view of the central planners.
You would be expected to
Explain a production possibility curve: the boundary between attainable and unattainable levels of production given current resources and technology
Draw a Production possibility curve diagram
Related scarcity and the production possibility curve: scarcity of resources determines the position of the production possibility curve and identifies the maximum that can be produced with available resources of land, labour and capital (quantity and quality)
Relate choice and the production possibility curve: better to choose a point on the production possibility curve than a point inside the curve, but points outside the curve cannot be chosen
Relate opportunity cost and the production possibility curve: making a choice of where to produce on the production possibility curve involves an opportunity cost; definition of opportunity cost and explanation. Making a choice to move from a point inside the production possibility curve to the production possibility curve involves no opportunity cost.
You will be expected to
Draw a diagram of a production possibility curve (PPC) indicating two alternative types of output (most likely "capital goods/consumer goods")
Define PPC – distinction between potential and actual output
Explain economic growth in terms of a shift outwards in the PPC and that a movement along the PPC represents reallocation of resources and opportunity cost
Also explain that substitution of capital goods for consumption goods (opportunity cost) along the PPC in the short-term leads to a shift outwards in the PPC i.e. economic growth.