resolving scarcity. basic economic problem allocation of a nation’s scarce resources between...
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Resolving Scarcity
Basic Economic Problem Allocation of a nation’s scarce resources
between competing uses that represent infinite wants.
Trying to satisfy infinite needs and wants with scarce resources.
Basic Economic Problem What to produce
How to produce
For whom to produce
Opportunity Cost When choosing between competing
choices, the opportunity cost is the benefit lost from the next best alternative.
Production Possibility Curve A line which shows the different
combination of two goods which can be produced if all resources are used efficiently.
Production Possibility Curve
Inside your PPC – this means you have unemployed resources.
Outside your PPC – this is impossible.
PPC Leftward Shift Rightward shift
PPC Leftward Shift 1. war 2. tsunami 3. natural
resources run out 4. emigration 5. capital becomes
outdated
Rightward shift 1. Discover new
resources 2. labour becomes
more productive 3. immigration
(especially of skilled labour)
4. new technology.
Production Possibility Curve Florida
Dominican Republic
Dominican Republic
Supply and demand
Sometimes supply and demand (or the market economy) doesn’t work.
So, we need a Mixed Economy.
The Mixed Economy An economy where goods and services
are provided by both the private and public sector.
Which of these goods and services would be provided by the public sector and which by the private sector?
1. international flights 2. intercity trains 3. primary school 4. dental care 5. shoes 6. the prison service 7. hotels 8. university education 9. mobile phones 10. banks
Two sectors of the Economy Goods and
services are provided by private individuals.
Goods and services are provided by the government.
Do markets work? The government
is not the solution to the problem, the government is the problem.
More money is spent researching baldness than researching malaria.
Why do we need a mixed economy? Because of Market Failure.
Market failure is when markets lead to inefficiency.
Examples of market failure 1. Public goods – goods that will not be
provided by the private sector.
Public goods
2. Merit goods. These goods are underprovided by the
private sector.
A third example of market failure 3. Lack of competition
Competition
Competition
In what other markets might there be a lack of competition?
Considering an economy of your choice, to what extent can it be considered a mixed economy?