Economics Grade 10B

UNIT ONE (Basic economic problem: choice and the allocation of resources )  In what to produce, consumers and producers would decide what goods
 define the nature of the economic problem (finite resources and unlimited wants) have to be produced for the society, whether consumer goods or capital
 define the factors of production (land, labour, capital, enterprise) goods
 define opportunity cost and analyse particular circumstances to illustrate the concept
 In how to produce, economy would decide the method of production,
 demonstrate how production possibility curves can be used to illustrate choice and
resource allocation whether to use labour intensive method or capital intensive method.
 evaluate the implications of particular courses of action in terms of opportunity cost.  In whom to produce, the economy would decide the targeted audience for
the outputs to be produced, that is whether the production is targeted for
OPPORTUNITY COST: consumers or for other factors of productions.
 it is the next best alternative forgone when making a choice. Also the government has to decide how to use its limited resources. It has to decide
 It is the cost of choosing between alternative uses of resources. how to allocate government spending and how income and wealth should be
 Eg: giving subsidy or state benefits means there would be less money available distributed; according to needs or ability of people. This also involves opportunity
for providing merit goods or for the development of the country. cost.
SCARCITY: COSUMPTION:
 Not having enough resources to satisfy unlimited human wants. Eg: lack of  Using up of goods to satisfy human wants.
skilled labours in the economy to produce higher output
ECONOMISING:
BASIC ECONOMIC PROBLEM
 Using the limited resources in a way that can minimise its wastage and maximise
All Economies face the basic economic problem of scarcity which cannot be resolved. the production of goods and services.
This is because:
FACTORS OF PRODUCTION / RESOURCES:
human wants are unlimited/infinite. And human wants are increasing day by day
while resources to satisfy these increasing wants is limited / finite , hence the  These are the things used to satisfy human wants. This include natural resources
resources not enough to satisfy human wants. (land), human resources (entrepreneur and labour) and capital resources
(capital).
Also the available resources have alternative uses, hence deciding how to use the  LAND: all natural resources in earth that are used in producing goods and
resource also involves opportunity cost. services. Eg: fish, corals, water, river, trees, woods
The most efficient allocation of scarce resources will satisfy as many needs and wants  LABOUR: this is the productive effort (skilled or unskilled, manual or mental)
as possible. provided by the people to produce goods and services. Eg: nurse, teacher,
doctor, principal
Hence every society must decide how best to use its scarce resources for the  CAPITAL: this is the man made resources used to produce other goods and
maximum benefit. This can be done by answering the basic economic questions of services. Eg: tools, machinery, factory buildings, offices, etc.
every society, that is what to produce, how to produce and for whom to produce.

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 Economics Grade 10B

 ENTREPRENEUR: these the owners of the business who organise and combine
the other resources in firms to produce goods and services. Eg: shop owner,
shareholder

METHODS TO INCREASE LABOUR EFFICIENCY / labour productivity / quality of labour:

 By giving qualitative education and training, the people can get skilled and highly
qualified, this can increase their productivity.
 By providing good health care, labour can get more healthy and fit to work more,
so their productivity can increase.
 By providing better management and working condition, people would be
encouraged to work and this can increase their efficiency
 If the business uses modern improved technology, labours can produce more by
using better methods and more up to date capital goods are likely to produce
more
 Increasing wages may motivate workers to produce more and be more
productive. SHIFT OF PRODUCTION POSSIBILITY CURVE

RESOURCE ALLOCATION:  Forward shift: increase in quantity and quality of resources(land / labour
capital), improvement of technology, discovery of resources, labour
 Distribution of resources among sectors of production. productivity
PRODUCTION POSSIBILITY CURVE  Backward shift: decrease in quantity of resources, occurrence of disasters.

 It is a diagram that shows a combination of two products a country can produce

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OPPORTUNITY COST AND PPC

Opportunity cost is the next best alternative forgone when making a choice.
RESOURCE ALLOCATION AND PPC
If the country decides to increase the production of capital good from A to B, then it
 Production possibility curve shows combination of two products a country can
has to forgo some amount of consumer goods. (calculation) the reduction in
produce with the use of available resources.
consumer goods is the opportunity cost of increasing the capital goods.
 If a country produce more capital goods, then it means the country’s resources
are allocated to produce more capital goods than consumer goods.
 If the country produce equal number of capital and consumer goods, then it
means the resources are allocated equally among capital and consumer goods.

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SCARCITY AND PPC  Besides, they must decide on whether to use labour intensive method of
production (use more labour and less capital) or capital intensive method of
Scarcity is not enough resources to satisfy all human wants.
production (use of more capital and less labour) to produce goods and services.
If the country produces on the PPC, it means the country is using all the available  They must also decide on other matters such as their target, maximizing profit or
resources and there is no resource left. sales, getting a good organizational image and reputation etc.

So the country will not be able to increase production of both the product at the (ii) The use of opportunity cost concept is very much applicable to every decision
same time since there is a scarcity of resources. that an individual make in their everyday life.

Hence, the only way to increase a production of a product is by only reducing the  For instance, what goods are they going to buy, what services they are going to
production of the other, due to scarcity of resources. made, what to do as a job/even in leisure time.
 Each of these actions have an opportunity cost or a sacrifice when choosing a
suitable alternative from a range of ones.
 When taking such decisions, they should take into account the next best choice
forgone when obtaining the best ones.

(iii) For each and every government action, the concept of opportunity cost is clearly
relevant and applicable whether it is any type of / sort of decision making such as
spending, expenditure.

 When spending, they must decide in which area to spend, eg. Education, health,
houses in consideration of the following best suitable choice.
 Also other activities also, for instance imposing trade restrictions or not,
whether to maintain a fixed or floating exchange rate, what industries to
subsidize, tax etc., all have some cost to be thought of before finalizing the
Discuss why the concept of opportunity cost is important for (i) firms (ii) consumers choice.
and (iii) governments to consider when making choices. [10]
So concept of opportunity cost is relevant to actions of firms, individuals and also
Opportunity cost is the next best alternative forgo in order to obtain the best thing. governments
This concept is (i) particularly vital for firms.

 Firstly, there is a wide range of goods and services that they can produce from a
pin to a plane, so they must decide which good they are going to produce.
 If it is a service based firm, there is a range of services they can provide such as
banking, transport, insurance to warehousing etc. So they must decide on which
services they are going to offer.
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 Economics Grade 10B

Explain the nature of the economic problem. [4]

All human wants are unlimited and growing day by day while the resources available
to satisfy these wants is limited / finite and also have alternative uses.

This means that human are forced to make choices between infinite human wants /
alternatives.

When we make a choice, we have to forgo something; the next best alternative
forgone in order to obtain the best thing is referred as opportunity cost.

This is the nature of basic economic problem of scarcity.

Using a production possibility curve diagram, analyse what effect an increase in the
number of graduates will have on an economy. [6]
 Axes correctly labelled (good x, good Y)
 Downward sloping curve to the axes, touching the axes.
 Right shift indicated by arrow or labelling
Diagram explanation:
 More graduates will increase the skill and productivity of workers, this can
increase the quality of labours
 High quality of labours can help the country to increase its production and
output, this can help to increase economic growth.