2. Prepared By:-
KVS, Delhi Region
ROBBINS DEFINITION OF ECONOMICS
The science which studies
human behaviour as a
relationship between ends and
scarce means which have
alternate uses.
3. Prepared By:-
KVS, Delhi Region
Problem of Choice
⢠Which wants should be satisfied ?
⢠To which use should a resource be put ?
â Resources have alternate uses
â Eg:- Tomatoes used - Juice
- Sandwich
- Vegetables
- Salad
Alternate
uses
Resource
4. Prepared By:-
KVS, Delhi Region
Basic Economic Problem
⢠Human wants are Unlimited wants
⢠Scarce resources
â Land
â Labour
â Capital
⢠Scarcity implies insufficient availability of resources to
meet all wants
⢠Scarcity leads to problem of choice
5. Prepared By:-
KVS, Delhi Region
CENTRAL PROBLEMS ARE THE SAME IN
ALL DIFFERENT ECONOMIC SYSTEMS
⢠Capitalistic Economy
⢠Socialistic Economy
⢠Mixed Economy
6. Prepared By:-
KVS, Delhi Region
Central Problems of an Economy
What to produce
and what
quantities
⢠Should the emphasis be on agriculture, manufacturing
or services
⢠Should the economy produce public goods or
private goods
⢠How much of the chosen goods and services should be
producedS
PROBLEM OF
ALLOCATION
OF
RESOURCES
8. Prepared By:-
KVS, Delhi Region
How to produce ?
PROBLEM OF CHOICE OF
TECHNIQUE OF
PRODUCTION
⢠LABOUR INTENSIVE
⢠CAPITAL INTENSIVE
9. Prepared By:-
KVS, Delhi Region
Opportunity Cost
⢠Defined as the benefit lost in terms of the next
best alternative foregone when a choice is
made.
⢠Helps view the true cost of decision making.
10. Prepared By:-
KVS, Delhi Region
Other Problems
Problem of Fuller Utilization of Resources
⢠Resources should be used to full potential
⢠There should be no wastage
⢠Resources should be utilised efficiently
â An âefficient method of productionâ
⢠Least resources required for a given output
⢠Maximum output obtained for given resources
Production techniques to produce
10 litres of ice cream
Production Labour Capital
Technique
A 5 4
B 5 5
C 6 4
D 6 6
Output produced using 4 units
of capital and 5 units of labour
Production Output
Technique (in litres)
A 10
B 8
C 7
D 6
Option A is the most efficient method of production
11. Prepared By:-
KVS, Delhi Region
Other Problems
Growth of Resources
⢠Resources can increase if there is:
â An increase in the quantum of resources
⢠Eg: New reserves of crude oil found
⢠Increase in labour
â Improvement in productivity
⢠Training labour to improve skills
⢠Improvements and advancements in technology
12. Prepared By:-
KVS, Delhi Region
Production Possibility Curve
Depicts all possible combination of two goods that an economy can
produce with full and efficient utilization of given resources and state
of technology
0 X
R
Quantity of wheat per week
Quantityoftankperweek
13. Prepared By:-
KVS, Delhi Region
Production Possibility Curve
Depicts all possible combination of two goods that an economy can
produce with full and efficient utilization of given resources and state
of technology
0 X
R
Quantity of wheat per week
Quantityoftankperweek
Pt R â all
resources used to
produce tank
14. Prepared By:-
KVS, Delhi Region
Production Possibility Curve
Depicts all possible combination of two goods that an economy can
produce with full and efficient utilization of given resources and state
of technology
0 X
R
Quantity of wheat per week
Quantityoftankperweek
Pt X â all
resources used to
produce wheat
15. Prepared By:-
KVS, Delhi Region
Production Possibility Curve
Depicts all possible combination of two goods that an economy can
produce with full and efficient utilization of given resources and state
of technology
0 29 X
5
R
S
Quantity of wheat per week
Quantityoftankperweek
Pt S â one
combination of
two goods that
can be produced
16. Prepared By:-
KVS, Delhi Region
Production Possibility Curve
Depicts all possible combination of two goods that an economy can
produce with full and efficient utilization of given resources and state
of technology
0 29 70 X
3
5
R
S
U
Quantity of wheat per week
Quantityoftankperweek
Pt U â one
combination of two
goods that can be
produced
17. Prepared By:-
KVS, Delhi Region
Features of PPCâ˘No âidealâ point on the curve
â All points on the PPC are equally efficient
â Economy needs to choose the point of operation
0 29 70 X
3
5
R
S
U
Quantity of wheat per week
Quantityoftankperweek
18. Prepared By:-
KVS, Delhi Region
Features of PPC
⢠More of one good means less of the other along the PPC
0 29 P
5
P
S
Quantity of wheat per week
Quantityoftankperweek
Initial point S
19. Prepared By:-
KVS, Delhi Region
Features of PPC
⢠More of one good means less of the other
along the PPC
0 29 P
P
5
S
Quantity of wheat per week
Quantityoftankperweek
Increasing output of
wheat
20. Prepared By:-
KVS, Delhi Region
Features of PPC
⢠More of one good means less of the other
along the PPC
0 29 70
3
5
S
U
Quantity of wheat per week
Quantityoftankperweek
P
P
Decreases output of
tank
21. Prepared By:-
KVS, Delhi Region
Features of PPC
⢠Marginal opportunity cost (MOC) increases as we move along the PPC
â MOC is the amount of one good that needs to be sacrificed per unit
increase in production of the other good
0
Quantity of wheat per week
Quantityoftankperweek
P
P
Given PPC - PP
22. Prepared By:-
KVS, Delhi Region
Features of PPC
⢠Marginal opportunity cost (MOC) increases as we move along the PPC
â MOC is the amount of one good that needs to be sacrificed per unit
increase in production of the other good
0 7
10
A
Quantity of wheat per week
Quantityoftankperweek
P
P
Initial production
point A
23. Prepared By:-
KVS, Delhi Region
Features of PPC
⢠Marginal opportunity cost (MOC) increases as we move along the PPC
â MOC is the amount of one good that needs to be sacrificed per unit
increase in production of the other good
0 7
10
A
Quantity of wheat per week
Quantityoftankperweek
P
9.5
8 P
When output of wheat
increases by 1 unit, output
of tank reduces by 0.5
unit
24. Prepared By:-
KVS, Delhi Region
Features of PPC
⢠Marginal opportunity cost (MOC) increases as we move along the PPC
â MOC is the amount of one good that needs to be sacrificed per unit
increase in production of the other good
0 7 12
5
10
A
B
Quantity of wheat per week
Quantityoftankperweek
P
9.5
8 P
25. Prepared By:-
KVS, Delhi Region
Features of PPC
⢠Marginal opportunity cost (MOC) increases as we move along the PPC
â MOC is the amount of one good that needs to be sacrificed per unit
increase in production of the other good
⢠Increasing MOC arises due
to difficulty is substituting
factors in production process
⢠Gives rise to concave shape
of PPC
0 7 12
5
10
A
B
Quantity of wheat per week
Quantityoftankperweek
P
9.5
3.5
8 13 P
26. Prepared By:-
KVS, Delhi Region
Features of PPC
⢠A point inside the PPC reflects
â Under utilisation of resources
â Unemployment of resources
â Inefficient allocation of resources
0 P
P
Quantity of wheat per week
Quantityoftankperweek
C
⢠Initial PPC â PP
⢠Take a pt C inside the PPC
27. Prepared By:-
KVS, Delhi Region
Features of PPC
⢠A point inside the PPC reflects
â Under utilisation of resources
â Unemployment of resources
â Inefficient allocation of resources
0 7 P
5
P
Quantity of wheat per week
Quantityoftankperweek
C
At point C output of wheat
is 7 units and tank is 5
units
28. Prepared By:-
KVS, Delhi Region
Features of PPC
⢠A point inside the PPC reflects
â Under utilisation of resources
â Unemployment of resources
â Inefficient allocation of resources
0 7 P
5
P A
Quantity of wheat per week
Quantityoftankperweek
C
29. Prepared By:-
KVS, Delhi Region
Features of PPC
⢠A point inside the PPC reflects
â Under utilisation of resources
â Unemployment of resources
â Inefficient allocation of resources
0 7 P
5
P A
B
Quantity of wheat per week
Quantityoftankperweek
C
30. Prepared By:-
KVS, Delhi Region
Features of PPC
⢠A point inside the PPC reflects
â Under utilisation of resources
â Unemployment of resources
â Inefficient allocation of resources
0 7 P
5
P A
B
Quantity of wheat per week
Quantityoftankperweek
D
C
31. Prepared By:-
KVS, Delhi Region
Features of PPC
⢠Point outside the PPC is unattainable
given existing resources
0
A
Quantity of wheat per week
Quantityoftankperweek
P
P
32. Prepared By:-
KVS, Delhi Region
Features of PPC
⢠Point outside the PPC is unattainable
given existing resources
⢠Can be achieved with growth of
resources
Resources grow by
⢠Increase in quantum
of resources
⢠Improvements in
productivity
0
A
Quantity of wheat per week
Quantityoftankperweek
P
P
33. Prepared By:-
KVS, Delhi Region
Features of PPC
⢠Point outside the PPC is unattainable given existing
resources
⢠Can be achieved with growth of resources
⢠Reflected by an outward shift in PPC
Resources grow by
⢠Increase in quantum
of resources
⢠Improvements in
productivity
0
Pâ
A
Quantity of wheat per week
Quantityoftankperweek
P Pâ
P
34. Prepared By:-
KVS, Delhi Region
Questions for Self- Evaluation
⢠Define marginal opportunity cost.
⢠Why does an economic problem arise ?
⢠What are the basic problems of an economy?
⢠Explain the problem of âhow to produce â
with the help of an example.
⢠Explain the central problem of âFor whom to
produce â
⢠Why is PP curve concave in shape?