Olevels economics

1. Unit 1
Basic Economic
Problems

2. * MicroEconomics - deals with
individual units or groups
* MacroEconomics - deals with nation
or economy as a whole

3. This is a
need!
A Want

4. This is a
need!
A Want!!!

5. This is a
need!
A Want!!!

6. Our wants are UNLIMITED but resources
are LIMITED………
So there is SCARCITY
Hence we have to make
CHOICES

7. So we say,
Resources are FINITE
but
Wants are INFINITE

8. Economics
is the
Science of CHOICE
(decisions made by YOU and ME, FIRMS,
GOVERNMENT )

9. Hence scarcity forces us
to make CHOICE

10. After the CHOICE has been made………
You will use different resources to
FULFILL THE CHOICE
ALLOCATION OF RESOURCES

11. Decision on ALLOCATION
OF RESOURCES, Leads to
3 major economic
problem/ questions:
•What to produce
•How to produce
•Whom to produce

13. • WHAT TO PRODUCE
• Food or Clothes
• Cars or hospitals
• ipods or Cosmetics or military strength
Basic Economic Problem- 3 decisions

14.  techniques used.
 least cost method of production
 labour intensive or capital intensive
Basic Economic Problem- 3 decisions
HOW TO PRODUCE

15. Will everyone get an equal share
of what is produced ?
Would the income be distributed
equally?
Basic Economic Problem- 3 decisions
for WHOM TO PRODUCE

16. • Production: Creating goods and
services
• Consumption: Using the goods
and services to satisfy want

17. Basic Economic Problem
Factors of Production (FOP)

18. Labour

20. The Enterpreneur:
- Organizes the 3 factors and production process
- Takes the risk (Profit and Loss)

21. Goods produced
Economic Goods
Made by using
resources/ FOP
Eg: They have a
price
Free Good
FOP not needed.
Eg: Air, water

22. Opportunity Cost
If I ask you, what will
you choose??

23. What is your choice?

26. Schools Or libraries
Roads Or Hospitals

27. • What you DO NOT CHOOSE is your
Opportunity Cost
• Opportunity Cost is the highest cost forgone
when making the decision

28. Who has to face this problem
of Opportunity Cost?
• You and me (Individuals)
• Firms (Business)
• Government

29. Production Possibility Curve (PPC)
• Every decision/choice we make has
an Opportunity Cost
• This idea of Opportunity Cost can be
illustrated using a PPC

30. A Typical PPF ………….
Unattainable
Inefficient
Opportunity
cost of is
increasing…

31. • Production Possibility curve (PPC) shows the
maximum combinations of goods and
services that can be produced by an
economy in a given time period with its
limited resources
• A point outside the graph is unachievable
and a point inside the graph is inefficient

32. PPC also tells you:
• What you can and cannot produce
• What is the cost of producing the
other good

33. Depending on our choices of Production,
the opportunity cost may
Remain Constant
Increase
Decrease

35. Production Possibilities/ Trade Off
Slide 35
A = 24 lbs of coffee
B = 16 lbs of cofee & 4 units of computers
C = 8 lbs of cofee and 8 Computers
D = 12 units of Computer
Coffee
(lb/day)
Computers
(unit/day)
A
B
C
D
24
0
16
8
4 8 12
Cost of
4 computers= ?
Another 4 Computers= ?
Another 4 Computers = ?
Hence Opportunity cost is
same

36. Unit 1 : Macroeconomics
National Council on Economic
Education
Constant O.C Decreasing O.C
Increasing O.C

37. • Consumer Goods
Products purchased by consumers
for personal or household use.
• Capital Goods
Producers’ goods or means of
production (Eg: Machines)
Creating Capital goods  Investment

38. Shift in PPC
Economic Growth

39. 0
B
A
Butter
Guns
C
Availibility of resources (Quantity and
Quality)
Increased Labour force
Improved Technology
Shift in PPC
Economic Growth
due to……

40. Economic Decline
due to …..
Butter
A
B Guns
0
C
D
Decline in resources
Working population falls
Shift in PPC