“Economics is the science of choices if there are scarce resources.”

Sample Solution

  The statement "Economics is the science of choices if there are scarce resources" is a key concept in economics. It means that because resources are limited, we have to make choices about how to use them. These choices can be about what goods and services to produce, how to produce them, and who gets to consume them.

Full Answer Section

  There are many examples of how this statement applies to the real world. For example, a country might have to choose between producing more food or more weapons. A company might have to choose between hiring more workers or investing in new equipment. And a household might have to choose between buying a new car or saving for a down payment on a house. In each of these cases, the decision-maker is faced with a trade-off. If they choose one option, they will have to give up the other. This is because resources are scarce and there is not enough to go around. The statement "Economics is the science of choices if there are scarce resources" is also important because it helps us to understand the concept of opportunity cost. Opportunity cost is the value of the next best alternative that is given up when a choice is made. For example, if a country chooses to produce more food, it is giving up the opportunity to produce more weapons. And if a company chooses to hire more workers, it is giving up the opportunity to invest in new equipment. The concept of opportunity cost is important because it helps us to understand the true cost of making a decision. When we make a choice, we are not just giving up the option that we chose not to take. We are also giving up the opportunity to do something else with the resources that we used to make that choice. Q2. Explain the concept of the production possibilities curve (PPC). How does PPC explain the concept of scarcity and opportunity cost? Provide a diagram showing the inefficient or underemployed resources in a hypothetical economy. (7.5Marks) The production possibilities curve (PPC) is a graph that shows the different combinations of goods and services that an economy can produce with its limited resources. The PPC is downward-sloping because of the concept of scarcity. Scarcity means that there are not enough resources to produce all of the goods and services that people want. This means that the economy has to make choices about what to produce. The PPC also shows the concept of opportunity cost. Opportunity cost is the value of the next best alternative that is given up when a choice is made. For example, if an economy chooses to produce more cars, it is giving up the opportunity to produce more computers. The PPC can be used to illustrate the concept of inefficient or underemployed resources. Inefficient resources are those that are not being used to their full potential. Underemployed resources are those that are being used, but not at their full potential. The diagram below shows a hypothetical PPC for an economy that produces cars and computers. The PPC shows that the economy can produce 100 cars or 50 computers, but it cannot produce 150 cars and 50 computers. This is because the economy does not have enough resources to produce both 150 cars and 50 computers. The area below the PPC represents inefficient or underemployed resources. For example, if the economy is producing 75 cars and 25 computers, it is using its resources inefficiently. It could be producing more cars or more computers, or it could be producing a combination of cars and computers that is different from 75 cars and 25 computers.