resolving scarcity. basic economic problem allocation of a nation’s scarce resources between...

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outdated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?