Lesson 4: Scarcity and Opportunity cost

• Production possibility curve (PPC)


  • PPC's show the difference combinations of goods and services that can be produced with a given amount of resources.
  • Other names such as Production possibility boundary (PPB) and Production possibility frontier (PPF).
  • No ideal point on the curve.
  • Any point inside the curve suggests resources are not being utilised effectively.
  • Any point outside the curve is not attainable with the current level of resources.
  • Useful to demonstrate economic decisions and opportunity cost.
• Opportunity Cost = x - x1

  
• Four factors of Production:

  Capital

  Enterprise

  Land

  Labour
• Capital - Something produced to produce other things e.g. tools.

  Enterprise/Entrepreneurship - Combining all factors of production.

  Land - You need natural resources.

  Labour - Manual human endeavour used.
• Shifting the PPC


  • The only way to shift the PPC outwards is to improve either the quantity or quality of one of the four factors of production.

  
• Positive statement

  • Capable of being verified or refuted by restoring to fact or further investigation.
• Normative statements 


  Contains a value judgement which cannot be verified by resort to investigation or research.