LESSON 2 PRODUCTION POSSIBILITY FRONTIER

• Economics


  Study of how scarce resources are allocated to fulfill the infinite wants of consumers
• Needs


  Basic necessities that a person must have in order to survive e.g. food, water, shelter, and clothing
• Wants


  Desire to have something e.g. bigger homes, iPhones
• Economic problem


  • Unlimited wants
  • Limited resources (Scarcity)
  • Choices
• Land


  Immovable asset/natural resources available for production
• Labor


  Physical and mental effort of people used in production
• Capital


  All non-natural (manufactured) resources that are used in the creation and production of other products
• Enterprise


  Management, organization and planning of the other three factors of production
• Factors of production and their returns

  • Land: Rent
  • Labor: Wages
  • Capital: Interest
  • Enterprise: Profit
• Opportunity cost


  Cost of the next alternative sacrificed
• Consumer goods


  Products sold to the general public
• Capital goods (Producer goods)


  Products purchased by other businesses to produce other goods and services e.g. computer, machinery, tools
• Services


  Intangible products provided by businesses e.g. teachers (education), doctors (healthcare)
• Production Possibility Frontier (PPF)


  Boundary of what is possible which shows the different combinations of goods and services that can be produced with a given amount of resources
• Points inside the PPF curve


  • Resources are not utilized efficiently
• Points outside the PPF curve


  • Not attainable with the current level of resources
• Basic economic problems


  • What to produce
  • How to produce it
  • Who shall receive it
• Planned economy


  Government centrally planned or command economy
• Free market economy


  Capitalism, self-righting economy
• Mixed economy


  Have government and market involvement
• Normative economics


  Judgement and biased
• Growth


  The increase in national output within an economy (country or region) during a time period - usually 12 months
• National output


  Sum of all goods and services produced in a country during a given period of time = GDP or GNP
• Development


  Qualitative variable and thus far broader than any of the variables aimed at describing it, having choices, opportunities, and freedom
• Sustainable development


  Development that meets the needs of the present without compromising the ability of future generations to meet their own needs
• Pillars of sustainable development

  • Economic development
  • Social development
  • Environmental protection