Economics that can be used to grow

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Economics Basic Concepts SA

The
concepts of scarcity, choice, opportunity cost, utilisation of resources, and
economic growth can all be explained with reference to the production
possibility curve

 

Scarcity

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An increase in
the production capacity in the economy will lead to an outward shift in the PPC
resulting in a decrease in scarcity. When the PPC shifts outwards, some of the
previously unattainable points will become attainable. The production capacity
in the economy could increase due to an increase in the quantity or the quality
of factors of production explanation and elaboration. For instance, education
and training which will lead to greater human capital will increase the skills and knowledge
of labour and hence the production capacity in the economy, thus shifting the
PPC outwards.

 

choice

A change in the
tastes and preferences of society will lead to a movement along the PPC which
reflects a change in choice. The tastes and preferences of society may change
due to technological advancements. For instance, the invention of the
smartphone and tablet computing has led to a change in the tastes and
preferences of society towards electronic publications. As such, the market may
be more inclined to produce more electronic publications.

 

opportunity
cost

The PPC is concave to the origin because the opportunity cost of
producing each good increase as its quantity increases. This is because
resources are not equally suitable to produce different goods. As the economy
produces more and more of a good, it must use resources that are less and less
suitable for producing the good to produce the good. Therefore, increasingly
more units of other goods must be given up producing each additional unit of
the good. For instance, a farmer has a plot of very arable land that can be
used to grow strawberries. To increase production of the strawberries, the
farmer may have to utilise surrounding plots of land which are less fertile. As
a result, the yield of strawberries per acre of land would decrease. Thus, the
PPC is concave. 

Categories: Economics

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