Scarcity, PPF, Division of Labour

Scarcity, PPF, Division of Labour

1. Scarcity - Finite Resources and limited money

   • There is only a finite (limited) number of workers, machines, factories, acres of land and reserves of oil on the planet earth. 
   • There is also a limited pot of money available to government to finance their spending priorities - the Government cannot raise taxes too much to fund health and education without affecting other areas of the economy.
   • Unlimited wants
     • People must give up things - make choices
     • Trade-offs
       • Opportunity cost
         • the loss of other alternatives when one alternative is chosen
   • Wants & Needs
     • Food
     • Housing
     • Health services
   • Basic economic problem
     • scarcity is the basic economic problem
     • Must make decisions
       • WHAT Goods and services to produce
       • HOW to produce goods
       • Who for?
   • Faced by consumers, producers and government
   • Sustainable Resource
     • A renewable resource that is used in such a way that it will not run out.
   • Factors of Production
     • Land
       • Natural resources
         • All scarce except Air
           • Air is a free good because consumption by one person does not reduce availability to another person. Free goods have no oppurtunity cost
     • Labour
       • Human input
       • Human capital
         • Human capital refers to the QUALITY of labor resources, which can be IMPROVED through INVESTMENTS in EDUCATION, TRAINING, and HEALTH
     • Capital
       • Investment in goods to produce more goods in the future. Capital refers to the machines, roads, factories, schools and office blocks (which produce more goods and services)
       • Fixed Capital
         • Machinery, tech, equipment
           • all goods designed to increase productive potential
       • Working Capital
         • Stocks of raw mats and components
     • Entrepreneurship
       • They Organise other factors to make G&S's
       • Success depends of quality of it

2. PPF

   • Curve that shows the combinations of two or more goods that can be produced while all resources are fully employed.
   • Operating inside
     • Using resources inefficiently
   • Beyond frontier (curve)
     • means allocative efficiency is improving.
     • CURRENTLY unattainable
     • attainable by
       • Increase in factor resources
         • due to rise in workforce, investment
       • Increase in efficiency/productivity
       • Tech. improvement
         • Brings prices down
   • Curve Shape
     • Means opportunity cost is changing. To have more of 1 good you need to get up even more of the other
   • Straight line
     • Opportunity cost is constant
   • Movement along frontier
     • Reallocating resources
       • Involves trade-off

3. Divisions of Labour

   • Where production is broken down in the many separate tasks.
   • Advantages
     • Faster production
     • Cheaper production
     • Higher production levels and output
     • Higher pay
   • Specialisation
     • Workers concentrate on specific tasks
     • Can bring lower prices
       • competition = incentive to minimise costs
     • Wider range of goods available
   • Disadvantages
     • Higher training costs
     • Quality falls due to no motivation
     • May be replaced by machinery
     • Small range of skills
       • the worker will not have a broad range of skills because their jobs are specialised.
     • high worker turnover