2. the economic concept of scarcity and choice Flashcards
what is scarcity and how does it arise
scarcity is the gap between limited resources and unlimited wants- means a choice must be made for the allocation of these resources
scarcity arises when there aren’t sufficient resources available to satisfy all human wants and needs. as a result, decisions need to be made on how to allocate these scarce resources efficiently
eg Ireland has a limited number of workers in our labour force, therefore there are constraints on what can be produced and who it is produced for.
what are needs, wants, scarcity, opportunity cost and trade offs ?
needs- the desire for human basic needs to eat and drink
wants- people desire certain types of goods or services to maximise their satisfaction- a person may need to drink but may want to drink an oreo cookie flavoured mooju
scarcity - the gap between limited recourses and unlimited wants. as resources are limited/ scarce and have alternative uses while wants are unlimited/ infinite. as a result, choices must be made and these choices an opportunity costs
opportunity cost - the cost of decision measured in the next best forgone alternative when a choice is made. in essence, it is the cost of the forgone alternative measured in what you didn’t get
trade-offs - making choices means trade offs. economies must decide which goods and services to produce, how to produce them, and for whom they will be produced. these choices inevitably involve sacrifices and gibing up some things with others
opportunity cost for individuals , firms and government
individuals - economic decisions made by individuals involve trade offs, as they must allocate their limited resources such as time and money to satisfy their various wants and needs
eg if an individual spends money on a luxury item, the opportunity cost may be forgoing the chance to save for a holiday
firms - firms face opportuntiy cost when deciding what goods or services to produce and how. aloocating resources to one producr or service means the firm might have to forgo producing something else with higher potential returns or demand. investing in new technology or expanding production might require diverting funds away from other potential investment opportunities.
government - govt decisions involve the allocation of public resources, including tax revenue, to provide essential services and public goods. eg increasing spending on education may lead to decrease funding for infrastructure projects or defence. deciding to implement a specific policy might have an opportunity cost in terms of alternative policies that were not pursued. fiscal policy decision, such as taxation and govt spending, have trade offs in terms of their impact on economic growth , inflation and income distribution
what is an incentive?
a incentive is something that motivates an individual or firm to behave in a certain way- it can be positive or negative
eg tax - sugar sweetened drink tax (SSDT)
eg a subsidy - cycle to work scheme
what is a regulation ?
a regulation is a rule or law that must be followed if broken, a punishment would be imposed
eg a fine or prison sentance
what is the principle of specialisation ?
this is the focus on specific tsks or activities to increase efficiency and productivity by a firm or individual. specialisation will create a comparative advantage
what is specialisation for an individual, advantages and disadvantages
individuals focus on tasks they are skilled in or have a comparative advantage. leads to higher productivity and time savings for them in completed tasks. helps leverage individual expertise and knowledge which increases earnings
adv- more efficient (quicker) production
- more productive in to the future with trainings(skills improve )
- less training required per person( only area is required is trained not lots of areas)
dis adv - staff morale falls/motivation if workers only do one task over and over (boredom)
- lack of development- no career progression or new skills
- lower occupational mobility(fewer skills) if the task becomes redundant( eg replaced by technology) the worker has less options for other jobs
what is specialisation for the firm ?
firms divide tasks among specialised departments or production lines. increases overall efficiency and economies of scale. allows firms to leverage employees expertise and achieves costs savings
what is a cost- benefit analysis
decision makers need to weigh up the pros and cons and see if there is a net cost or net benefit of taking a certain action
generally if the project’s estimated net benefits outweigh the net costs of the decision/ project , the project will go ahead
cost-benefit analysis - private cost, private benefit, social cost, social benefit, external benefit, external costs
private cost- a financial spend by the individual/govt eg the financial cost of installing solar panels
private benefit- a personal return for the action taken by the individual/ govt eg lower bills due to installing solar panels
social cost- the individual plus third parties not involved in the production or consumption of the good are impacted negatively eg high noise and pollution involved in construction
social benefit- the individual plus third parties not involved in the production or consumption of the good are impacted positively eg through using solar panels there will be a reduced use of electricity from non- renewable sources reducing the use of finite resources and less harmful emissions into the environment
external benefit- an external benefit is a benefit that accrues to an outside third party as a result of the actions of another party
external costs - an external cost is a cost that accrues to an outside third party as a result of the actions of a third party
how do individuals, firms, businesses, NGO’s and the govt interreact ?
individuals- play the role of consumers and workers in the economy. they make choices based on their preferences, budget and prices of goods+servies in the market in order to maximise their satisfaction
firms/businesses- they often act in ehir best interests to maximise profits. they offer labour, wages and pay taxes though spending and earnings. they chose how to use scarce resources(raw materials) to decide what to produce to satisfy demand
govts- try to create an economy which grows, equality among citizens and a reasonable standard of living, provide certain goods and services they deem essential or a public right eg healthcare , education. they collect taxes from individuals and businesses which provide a source of revenue to fund public goods and services. govt regulations and policies affect the operations of firms and businesses , including environmental standards =, labour laws and market competition rules
NGOs ( non government organisations ), NPOs ( non profit organisations) - they act to improve an aspect of society, not to make a profit. they are private organisations that operate independently from the govt, they play various roles in the economy . they often address social and environmental issues , charitable services or advocate for a specific cause. they may distribute resources such as aid and assistance to individuals and communities in need
production possibility frontier (PPF)
what is it ? , efficient production point, inefficient production point, impossible production point
the PPF is an economic concept that shows the trade-offs/ opportunities facing a firm or economy when faced with deciding how to allocate scarce resources
efficient production point- refers to a point of production where the firm is making the best possible use of scarce resources. it is producing as much as it can given their current resources
this is any point on the boundary of the PPF curve
inefficient production point - refers to a point of production where the firm is wasteful of scarce resources. it is possible for the firm to produce more
this can be seen at any point inside the boundary of the curve
impossible production point- refers to a point o production where the firm cannot currently produce given their current scarce resources. in irder to produce this amount, the firm would need to increase their factors production
this can be seen anywhere outside the boundary of the curve
what can cause the PPF to shift to the right ?
1.more resources become available (labour) - this increases the productive capacity of an economy, or it might be from an improvement in the quality of resources used
eg there is an increase in workers due to immigration of the original workers become more skilled or educate and therefore can produce more than before
2.there is a technology change (capital)- an upgrade in machinery or the introduction of new machinery can increase the productive capacity of an economy
eg video conferencing(zoom) has made it easier for businesses to conduct meeting, conferences and interviews without the need to travel or organise. this frees up time and money to increase the productive capacity of a firm/ economy
eg AI for admin/ tasks
