A closer look at the Economic Problem of Scarcity

What does an improved production technique?

An improved production technique shifts outwards the production possibility curve (PPC) outward, indicating an increase in the ecomomy’s capacity to produce more of both goods without sacrificing either.

How do you illustrate an improved production technique using a PPC?

To illustrate this:

1. Draw the Original PCC: Draw a concave (bowed-out) curve representing the original production possibilities between two goods (e.g., Good A and Good B)

2. Improved Technique: If a technological improvement happened in the production of Good A, the PPC will shift outward more along the axis of Good A. This means the economy can now produce more of Good A without sacrificing as much of Good B.

3. Draw the New PCC: Draw a new curve that is shifted outward, particularly toward the Good A axis, reflecting the increased efficiency in producing Good A. The curve may also shift slightly outward along the Good B axis if the improvement indirectly benefits Good B.

State the three central economic questions

The three central economic questions that every society must address are:

1. What to produce? Determines goods and services to meet population needs and wants with limited resources.

2. How to produce? Addresses methods and combinations of resources used in the production process for efficiency and sustainability (natural resources, labour, capital and technology

3. For whom to produce? Goods and services are produced for two main groups: the government (public sector) and the private sector.

 

These questions arise due to scarcity problems (unlimited wants exceed limited resources), requiring decisions about resource allocations.

What is the difference between capital intensive and labour intensive?

1. Capital intensive = production process dominated by machines

2. Labour intensive = production process dominated by labour

What is the criteria for choosing whether or not to have a capital-intensive or labour-intensive production process

When choosing between capital-intensive and labour-intensive production processes, consider factors like resource availability, quality of resources available, relative costs (price of labour versus capital), labour regulations, and relevant laws.

What is the definition of capital and consumer goods and final and intermediate goods

1. Consumer Goods: For personal use

2. Capital Goods: Assets used in the production of consumer goods

3. Final Goods: Goods that do not require further processing

4. Intermediate Goods: When a product is purchased to manufacture another product