1.1.3 The Economic Problem

The Economic Problem

One part of the economic problem is the problem of scarcity in this world. Resources are scarce and finite, whereas wants are infinite. This is the basis of the economic problem.

The distinction between renewable and non-renewable resources is that non-renewable resources cannot be replaced after they are used, for example coal or oil. However renewable resources can renew themselves, for example plant oils and crops. 

Opportunity cost are the benefits forgone of not choosing the next best alternative.
For Example: By choosing history for a level my opportunity cost was Further Maths and all of its benefits. 

Opportunity cost is important to many different groups of people. It is important to consumers as they have limited amounts of money to spend on goods so they need to choose what they will benefit the most from. It is important to firms because they would be trying to find ways to maximise profit and grow their business. Therefore they would need to keep opportunity cost in mind. It is also important to governments as they need to decide what to spend taxpayer's money on to keep people happy. 

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1.1.4 Production Possibility Frontiers

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Production Possibility Frontiers The PPF shows the maximum output combinations an economy can achieve when all resources are fully and efficiently employed. Factor Mobility refers to the ability to move factors of production out of one production into another. Opportunity cost increases because not all our factor inputs can produce both goods equally a well. Most economies have some degree of specialisation, some of their factor inputs are more suited to a particular industry so factor immobility exists. If resources are moved to another industry then they are done so at an increasing opportunity cost. A PPF will shift outwards if there is an increase in the quality or quantity of resources. PPFs can also shift inwards if there are wars, natural disasters or epidemics. This shows constant opportunity cost Economic growth - an increase in the real or potential output, this is shown by an outward shift in the PPF. Factor Immobility - occurs when it is difficult for fact
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