Lesson 1 · Basic economics

🌾 The Economic Problem & PPC Diagrams

Every country has to choose: more hospitals or more roads? One simple curve shows what a country can make, and what each choice costs it.

⚖️ The basic economic problem

Resources are finite but wants are infinite, which creates scarcity. Every economy must therefore answer three questions: what to produce, how to produce it and who to produce it for. The factors of production are land, labour, capital and enterprise.

land: natural resources, such as water and minerals labour: human effort capital: human-made goods, such as machines enterprise: organising production and taking risks opportunity cost: the next best alternative given up

🖼️ See it

A is on the curve, B is inside it and C is outside it. Moving along the curve to get more cars means giving up wheat.

📈 Reading a PPC

A production possibility curve (PPC) shows the maximum combinations of two goods an economy can make with its resources.

on the curve: all resources used efficiently inside the curve: unused resources, such as unemployment outside the curve: not possible with current resources moving along the curve shows the opportunity cost: from 40 cars and 60 tonnes of wheat to 50 cars and 45 tonnes of wheat opportunity cost of 10 cars = 15 tonnes of wheat

➡️ Shifting the curve

A movement along the PPC means a change in the mix of goods. A shift means a change in the economy’s capacity.

outward shift: more resources, better technology, more education and training inward shift: natural disaster, war, fewer workers, resources running out

Common mistake: falling unemployment does not shift the curve. It moves the economy from inside the curve towards it.

✏️ Quick check · 1 of 8

Basic problem

The basic economic problem exists because:

Think scarcity.

✏️ Quick check · 2 of 8

Factors

Which is a capital good?

Made by humans for production.

✏️ Quick check · 3 of 8

Enterprise

Enterprise is the factor that:

The entrepreneur.

✏️ Quick check · 4 of 8

Point

A point inside the PPC shows that:

Could more be made?

✏️ Quick check · 5 of 8

Point

A point outside the PPC is:

Beyond the limit.

✏️ Quick check · 6 of 8

Shift

Which shifts the PPC outward?

More capacity.

✍️ Type your answer · 7 of 8

An economy moves from 60 tonnes of wheat and 40 cars to 45 tonnes of wheat and 50 cars.

What is the opportunity cost of the extra cars, in tonnes of wheat?

Enter an exact answer, without rounding.

tonnes

How much wheat is lost?

✍️ Type your answer · 8 of 8

An economy moves from 80 hospitals and 20 schools to 70 hospitals and 40 schools.

How many hospitals are given up per extra school?

Enter an exact answer, without rounding.

Divide hospitals by schools.

📝 Lesson quiz · 5 questions

Question 1 of 5

Opportunity cost is:

Question 2 of 5

Which is NOT a factor of production?

Question 3 of 5

A movement along the PPC shows:

Question 4 of 5

A major earthquake that destroys factories would:

Question 5 of 5

Which is one of the three basic economic questions?

Final Challenge

🏆 4-Question Challenge Quiz

Questions from every topic in this course. Pick an answer for each one, then hit Check My Answers.

Q1 · The Economic Problem & PPC Diagrams

A country on its PPC wants more of one good. It must:

Q2 · The Economic Problem & PPC Diagrams

More education and training would most likely:

Q3 · The Economic Problem & PPC Diagrams

Scarcity means:

Q4 · The Economic Problem & PPC Diagrams

A point inside the PPC could be caused by: