Basic Economic Problem:

The basic economic problem is that there are finite resources and unlimited wants; in
other words there are unlimited human wants, and resources which are used to make
those goods are limited.
The basic economic problem arises when wants are unlimited and resources are scarce.
Scarcity:
Scarcity is the basic economic problem because scarce resources are available to satisfy
the unlimited wants.
Scarcity exists because wants grow at a faster rate than goods that can be produced.
Thus, scarcity leads to choice.
Opportunity Cost:
Opportunity cost is the next best alternative foregone when a choice is made.
Factors Of Production:
These are the inputs in the production process and are used for the production of goods
and services.
Land:
All natural resources that are locked up in the earth surface, including minerals, fossil
fuels, forests timber and oil.
Labour:
It is the physical and mental capability of manpower which consists of all skill knowledge,
energies that are provided by the working population.
Labour can be considered as the human resources available.
e.g teachers, coal miners and factory workers which include both skilled and unskilled
workers.
Capital:
Capital consists of all man made resources, which help in the production of other goods
and services.
e.g. machinery, tools
Enterpreneur:
Enterprise is the process of managing and deciding how factors of production should be
used in order to make profits.
The person who undertakes this responsibility is known as the entrepreneur. An
entrepreneur is a person who takes the risk of opening a new business (risk taker).

Production Possibility Curve:

The following is a curve representing all possible combinations of two goods that can be
produced by an economy where all of its resources are fully and efficiently employed.
 Point X:
The economy can exist at this point but it is being inefficient. Point X Is considered
inefficient as resources are idle. This could mean that workers are unemployed or
unmotivated, machines are idle or that factories are half used.
Point Y:
Point Y is unattainable as the economy doesnt have enough resources to produce both
of the products.

Movement Along The Curve:

Movement along the PPC involves an opportunity cost. For instance if the economy
moves from point A to B less product B will be formed and less product A will be
produced as compared to before. This would result in an opportunity cost of some
product A that was first produced. Therefore all along the PPC, opportunity cost is
incurred.

Shifts In The Production Possibility Curve:

Rightward Shift:

Reasons for rightward shift:

The quantity of resources available for production can increase e.g. labor can increase
if there is an increase in population.
Increase in the capital, where more machines, factories and tools are produced.
The quality of resources might have improved.

Leftward shift:
 Reasons for leftward shift:
Less resources available.
The PPC can also shift inwards to the left due to war or natural disasters, which reduce
a countrys resources.

Changes In The Slope Of The PPC:

If there is a change in the quantity and quality of resources, which are specific to the
production of one type of good, then the entire PPC will not shift to the right, but only the
slope will change.
E.g. Technological improvement in the production of product B has caused the
maximum number of product B to increase, but the maximum number of product A
doesnt change. It can also be the other way around i.e. where the slope moves
vertically upwards indicating an increase in the maximum number of product A.