Scarcity, Choice & OC 01-09-2013
What are resources?
Factors of production used to produce goods and services that are available for consumption
o Land – arable land, minerals, etc.
o Labour – human capital
o Capital – manufactured aids to production – machinery, tools, buildings
Economic problem: resources are limited, but desire for goods and services are not
o Choices must be made
o And where there are choices, there must exist costs (ex. trade-offs)
Every time a choice is made, you are implicitly giving up the opportunity to consume (do) something else
The opportunity cost of a choice is the value of the best forgone alternative
o We will think of value as the benefit minus the cost of an alternative
Production Possibilities Boundary (Frontier)
PPF illustrates concepts of scarcity, choice and OC
PPF – simple and powerful model