Introduction to Economics

The Economic Problem
• What goods and services should an economy produce? – should the emphasis be on agriculture, manufacturing or services, should it be on sport and leisure or housing?
• How should goods and services be produced? – labour intensive, land intensive, capital intensive? Efficiency?
• Who should get the goods and services produced? – even distribution? more for the rich? for those who work hard?
Opportunity Cost
• Definition – the cost expressed in terms of the next best alternative sacrificed
• Helps us view the true cost of decision making
• Implies valuing different choices
Production Possibility Frontiers
• Show the different combinations of goods and services that can be produced with a given amount of resources
• No ‘ideal’ point on the curve
• Any point inside the curve – suggests resources are not being utilised efficiently
• Any point outside the curve – not attainable with the current level of resources
• Useful to demonstrate economic growth and opportunity cost
Production Possibility Frontiers
• Capital Goods
• Consumer Goods
• Yo
• Xo
• A
• B
• Y1
• X1
• Assume a country can produce two types of goods with its resources – capital goods and consumer goods
• If it devotes all resources to capital goods it could produce a maximum of Ym.
• If it devotes all its resources to consumer goods it could produce a maximum...

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