STATE THE BASIC ECONOMIC PROBLEM RELATIONSHIP BETWEEN UNLIM

STATE THE BASIC ECONOMIC PROBLEM – RELATIONSHIP BETWEEN (UNLIMITED) NEEDS/WANTS AND (SCARCE/LIMITED) RESOURCES

DESCRIBE THE FOLLOWING CONCEPTS RELATIVE TO PRODUCTION POSSIBILITIES:

PRODUCTALLOCATIVE EFFICIENCYIVE EFFICIENCY

PRODUCTION POSSIBILITIES CURVE

LAW OF INCREASING OPPORTUNITY COST

LAW OF CONSTANT OPPORTUNITY COST

USING PRODUCTION POSSIBILITIES CONCEPTS EXPLAIN:

HOW ALLOCATIVE EFFICENCY DETERMINES THE OPTIMAL POINT ON THE PRODUCTION POSSIBILITIES CURVE.

ATTAINABLE VS. UNATTAINABLE PRODUCTION

FULL EMPLOYMENT vs. UNDER/UNEMPLOYMENT OF RESOURCES

HOW ECONOMIC GROWTH CAN OCCUR THROUGH CHANGES IN TECHNOLOGY OR RESOURCES AND HOW THIS WILL AFFECT THE CURVE

THE CONCEPT OF PRESENT VS. FUTURE CONSUMPTION

DESCRIBE A 2 SECTOR CIRCULAR FLOW MODEL FOR CONSUMERS & BUSINESS THROUGH THE PRODUCT AND RESOURCE MARKETS

EXPLAIN HOW A CHANGE IN EACH DETERMINANT OF DEMAND SHIFTS THE DEMAND CURVE – AND ITS RESULT ON PRICE AND QUANTITY

INCOME FOR A NORMAL GOOD (Yn)

INCOME FOR AN INFERIOR GOOD (Yi)

TASTES (T)

PRICE OF A SUBSTITUTE (Ps)

PRICE OF A COMPLEMENT (Pc)

NUMBER OF BUYERS IN A MARKET (#B)

EXPECTATIONS OF PRICES AND INCOME CHANGES (EXP p,y)

EXPLAIN HOW A CHANGE IN EACH DETERMINANT OF SUPPLY SHIFTS THE SUPPLY CURVE – AND ITS RESULT ON PRICE AND QUANTITY.

NUMBER OF SELLERS (#S)

TECHNOLOGY (TECH)

COST OF RESOURCES (Cost)

TAXES (TAX)

SUBSIDIES (SUB)

EXPECTATIONS OF PROFITS FOR PRODUCERS (EXP )

EXPLAIN HOW THE PRICE OF THE GOOD ITSELF (Px) CHANGES SUPPLY AND DEMAND – AND IT’S RESULT ON PRICE AND QUANTITY

EXPLAIN HOW A CHANGE IN THE FOLLOWING COMBINATIONS AFFECTS THE SUPPLY AND DEMAND CURVES – AND THEIR RESULT ON PRICE AND QUANTITY.

AN INCREASE IN DEMAND AND AN INCREASE IN SUPPLY.

AN INCREASE IN DEMAND AND A DECREASE IN SUPPLY.

A DECREASE IN DEMAND AND AN INCREASE IN SUPPLY.

A DECREASE IN DEMAND AND A DECREASE IN SUPPLY.

Solution

Q1. STATE THE BASIC ECONOMIC PROBLEM – RELATIONSHIP BETWEEN (UNLIMITED) NEEDS/WANTS AND (SCARCE/LIMITED) RESOURCES

Answer - Economics is generally concerned with the use of material resources to satisfy human wants. Human wants are unlimited but the resources such as land, labor, capital, raw material, natural resources that can be used to produce goods and services to satisfy unlimited human wants are scarce or limited.

With human wants being unlimited but resources needed to satisfy those wants being limited, individually as well as collectively human wants can not be satisfied in their totality.

This give rise to problem of how to utilize the scarce resources so that human wants can be fulfilled in maximum possible quantum.

This is generally called the basic economic problem as this is the problem that is central to the all other economic problems faced by the society.

Each and every economic system whether it is capitalist or socialist or mixed have to deal with this problem that is have to cope with this central problem of scarcity of resources realtive to unlimited wants.

Thus, the econmomic problem derives from the scarcity of resources relative to human wants.