Scarcity, Opportunity Cost and
Productions Possibilities Curve
Scarcity, Opportunity Cost and
Production Possibilities Curves

Scarcity- wants are unlimited!




Sunshine?
Polio?
Water?
But…..Resources ARE limited

Land, labor, capital, and entrepreneurship
Land
Labor- all human attributes that are
productive
Capital- productive equipment or
machinery
Entrepreneurship
Everything Has a Cost


“No such thing as a free lunch”
Opportunity cost- what must be sacrificed
to obtain something
Opportunity Costs


Explicit Cost- Out of pocket expenses you
would typically consider
Implicit Cost- measure the value of
resources that could have been used
elsewhere
Calculating Opportunity Cost


Workaholic Alex Anderson is considering a trip to
Sanibel Island, Florida for his spring break. He
estimates his roundtrip airfare would be
$275.00, his car rental would cost $175.00, and
his hotel expenses would be $950.00 for his
one-week trip. By going on vacation, Alex would
not earn his usual $1,250.00 per week. Felix
spends the same amount on food wherever Alex
Anderson is. He always eats at restaurants, and
his meals cost an average of $290.00 per week.
Calculate the “cost” of this vacation for Alex:
Total Cost: $2,650.00




Airfare: $275.00 (explicit cost)
Car rental: $175.00 (explicit cost)
Hotel: $950.00 (explicit cost)
Forgone Earnings: $1,250.00 (implicit
cost)
Remember: Every Economy Must
Allocate Scare Resources Among
Unlimited Wants and Ask:
 What, and how much, to
produce?
 How to produce it?
 For whom to produce it?
Traditional Economy

Same Roles Throughout Generations
Command Economy

Central government dictates what will or
will not be produced
Market Economy (Capitalism)


Supply and Demand Determine Prices
Ceteris Paribus- all other things being
unchanged
What system would you use to:

1. Achieve allocative efficiency?
What system would you use to:
To organize production as to achieve a
predetermined societal goal?
What system would you use to:

To organize production in a way that is
easy to understand and reduce job-related
stress?
What system would you use to:

To organize production as to correct for
positive and negative externalities?
What system would you use to:

To organize production in a way that
eliminates the need for centralized
decision making and relies on the pursuit
of self-interest?
What is an example of these three
types of systems in the United
States today?
The Circular Flow of Resources,
Goods, Services and Money Payments
Visual 1.3