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Chapter 1:
What economics
is all about
Scarcity, choice and opportunity cost
Wants- Human desires for goods and services
Wants are unlimited –we all want everything.
Needs-Are necessities, the things that are essential for
survival. Needs are not absolute unlimited, it is possible to
calculate basic needs which have to be met if a person or
household is to survive
Demand-There is demand for a good or service only if
those who want to purchase it have the necessary means
to do so. Demand has to be backed by purchasing power
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• Some wants will be satisfied but many will be left
unsatisfied, difficult choices have to be made
• When resources are used to produce a certain good, they
are not available to produce other goods
• A decision to produce more of one good therefore also
means that less of another good can be produced
• Resources are scarce the use of resources can be costless
• There are always costs involved in any use of scarce
resources
•
We are all faced with difficulty choices between different
alternative
• We can measure the cost of the alternative we have
chosen in terms of the alternative that we have sacrificed.
This is called opportunity cost that is the best alternative
that has to be sacrificed
• Opportunity cost of a choice is the value of the decision
maker of the best alternative that could have been
chosen but was not chosen. The opportunity cost of a
choice is the value of the best forgone opportunity
• Every time a choice is made, opportunity costs are
incurred
Illustrating scarcity, choice and opportunity
cost: the production possibilities curve
Table 1-1 Production possibilities for the Wild Coast community
(Textbook page 6)
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The production possibilities curve indicates the
combinations of any two goods or services that are
attainable when the community’s resources are fully
and efficiently employed
Illustrating scarcity, choice and opportunity cost: the production possibilities curve
Figure 1-1 A production possibilities curve for the Wild Coast
community (Textbook page 6)
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Further applications of the production
possibilities curve
See Box 1-2 Goods and services (Textbook page 7)
Figure 1-2 Improved
technique for producing
capital goods
(Textbook page 9)
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Further applications of the production possibilities curve
Figure 1-3 Improved technique for producing consumer goods
(Textbook page 10)
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Further applications of the production possibilities curve
Figure 1-4 Increase in the quantity or productivity of the available
resources (Textbook page 10)
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Further applications of the production possibilities curve
Table 1-2 The production possibilities curve (PPC): a summary
(Textbook page 10)
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Microeconomics and macroeconomics
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