economics

1. By : Dhirendra Chauhan
Central Problems
of
an Economy

2. “Economic problem (Central problems) are the problems of
resource allocation or making choices in the use of scarce
resources having alternative used”
Economic Problem
OR
“it is the problem of making choices in the use of scarce
resources for satisfaction of unlimited wants ”

3. “Scarcity ”
(The root of central problems)
1) The problem of choices which given rise to various central
problems of our economy is also defined as the problem of
economising resources.
2) Scarcity is the mother of all economic problems.

4. “ Why does an economic problem arise”
1) Unlimited human wants: No man can satisfy his wants fully
2) Limited resources : resources are scarce in relation to the need
for them
3) Resources can be put to alternative uses : Resources are not
only limited but can also be put to different alternative uses

5. “Allocation of Resources”
1) It is the basic problem related to utilisation of resources for the
production of different goods and services .
2) Types :-Allocation of resources has three aspects
a) What to produce and in what quantity
b) How to produce
c) For whom to produce

6. a) What to produce and in what quantity

7. a) How to produce

8. a) For whom to produce

9. Diagram
X Commodity
A
B
M
N
X
Y
x1 x2
y1
y2
Y
Commodity
x
y
O
K
Slope of ΔKMN =
Perpendicular
Base
KM
KN
=
=
Y1Y2
X1X2
(-) ΔY
ΔX
MRT=

10. Properties of PPC on MOC
1. PPC slopes downwards
PPC slopes downwards from left to right because from the given resources ,
production of both the goods cannot be increased. More of good X can be
produced only by producing less of good Y. it is because renounces are
fixed
1. PPC is concave to the point of origin
A concave downward sloping curve has an increasing slope. i.e.- increasing
marginal opportunity coast or increasing MRT

11. Types of MOC
1. Increasing MOC
X Commodity
A
B
X
Y
Y
Commodity
O
Combinations
A
B
C
D
E
X
Commodity
0
1
2
3
4
Y
Commodity
100
90
70
40
0
MOC = ΔY/
ΔX
-
10÷1=1
0
20÷1=2
0
30÷1=3
0
40÷1=4
0
Concave PPC

12. Types of MOC
2. Deceasing MOC
X Commodity
A
B X
Y
Y
Commodity
O
Combinations
A
B
C
D
E
X
Commodity
0
1
2
3
4
Y
Commodity
100
60
30
10
0
MOC = ΔY/
ΔX
-
40÷1=4
0
30÷1=3
0
20÷1=2
0
10÷1=1
0
Convex PPC

13. Types of MOC
3. “Constant MOC”
X Commodity
A
B X
Y
Y
Commodity
O
Combinations
A
B
C
D
E
F
X
Commodity
0
1
2
3
4
5
Y
Commodity
100
80
60
40
02
0
MOC = ΔY/
ΔX
-
20÷1=2
0
20÷1=2
0
20÷1=2
0
20÷1=2
0
Straight Line
PPC

14. Explanation
PPC MOC
Concave
Convex
Straight Line

15. THANK
YOU