Unit 1 and 2
,Explain how an economy might experience a growth in production possibilities (10 marks)
A production possibility curve is a diagrammatic representation of the maximum possible
combinations of outputs of producing two different goods in the economy with existing resources
and technology.An increase in production possibilities occurs when there is an increase in the
quantity and quality of factors of production like land,labour,capital and enterprise.This may lead
to potential growth,which takes place when a point on the production possibility curve shifts
outward to the right.Some factors that may cause this outward shift include discovery of new
resources like discovery of new oil refinery,increase in productivity of workers,advancements in
technology and improvement in the level of skills and qualification/education of workers.
PPC OUTWARD SHIFT -potential growth
Furthermore,another way in which there may be a growth in production possibilities is when a
point inside the PPC that is currently inefficient shifts to a point on the PPC that is fully efficient
and maximizes the use of existing resources in the economy.This is known as Actual growth
and it happens as a result of improved utilization of previously idle resources.Factors that may
help in maximizing the full utilization of existing resources this means all factors of production
are employed for example idle land is used to make a factory and there is a decrease in levels
of unemployment of workers.
PPC point moving from inside to on PPC
Explain the idea of opportunity cost (10 marks)-Distinguish between constant opportunity cost
and increasing marginal opportunity cost (10 marks)
The basic economic problem that is experienced is that there are scarce,finite resources to
satisfy infinite human needs and wants.Scarcity refers to the shortage of resources within the
economy.For this reason,the economic agents:households and individuals,firms and the
government need to make choices regarding what to produce,how to produce and for whom to
produce using existing resources in the economy.These choices involve an opportunity
cost.Opportunity cost refers to the next-best alternative foregone.For example if a boy gets a
pocket money of $100 a week and some of his expenses include buying food from the school
canteen,going out for the movies with friends and buying a new video game.The boy will then
have to choose how much he wants to spend on each of his expenses.Assuming he chooses to
spend about $50 to buy a new video game he will only have $50 left so he will have make a
choice whether to spend on buying food or going out for the movies,if he chooses to buy the
food the opportunity cost for his decision will be the benefit enjoyed from going out to the
movies with his friends.But if he chooses to spend his money i.e the $50 left on buying food,the
opportunity cost will be the benefit enjoyed by going out to the movies with his friends.
, Moreover,there are two types of opportunity cost- increasing opportunity cost and constant
opportunity cost.Increasing opportunity cost is when the opportunity cost increases as more is
produced.It is represented as a concave PPC graph.
At point B,the economy can produce 20000 breads and 1500 laptops but as the economy shifts
from operating at point b to point c ,it is now producing 40000 breads and 1000 laptops.So
,Explain how an economy might experience a growth in production possibilities (10 marks)
A production possibility curve is a diagrammatic representation of the maximum possible
combinations of outputs of producing two different goods in the economy with existing resources
and technology.An increase in production possibilities occurs when there is an increase in the
quantity and quality of factors of production like land,labour,capital and enterprise.This may lead
to potential growth,which takes place when a point on the production possibility curve shifts
outward to the right.Some factors that may cause this outward shift include discovery of new
resources like discovery of new oil refinery,increase in productivity of workers,advancements in
technology and improvement in the level of skills and qualification/education of workers.
PPC OUTWARD SHIFT -potential growth
Furthermore,another way in which there may be a growth in production possibilities is when a
point inside the PPC that is currently inefficient shifts to a point on the PPC that is fully efficient
and maximizes the use of existing resources in the economy.This is known as Actual growth
and it happens as a result of improved utilization of previously idle resources.Factors that may
help in maximizing the full utilization of existing resources this means all factors of production
are employed for example idle land is used to make a factory and there is a decrease in levels
of unemployment of workers.
PPC point moving from inside to on PPC
Explain the idea of opportunity cost (10 marks)-Distinguish between constant opportunity cost
and increasing marginal opportunity cost (10 marks)
The basic economic problem that is experienced is that there are scarce,finite resources to
satisfy infinite human needs and wants.Scarcity refers to the shortage of resources within the
economy.For this reason,the economic agents:households and individuals,firms and the
government need to make choices regarding what to produce,how to produce and for whom to
produce using existing resources in the economy.These choices involve an opportunity
cost.Opportunity cost refers to the next-best alternative foregone.For example if a boy gets a
pocket money of $100 a week and some of his expenses include buying food from the school
canteen,going out for the movies with friends and buying a new video game.The boy will then
have to choose how much he wants to spend on each of his expenses.Assuming he chooses to
spend about $50 to buy a new video game he will only have $50 left so he will have make a
choice whether to spend on buying food or going out for the movies,if he chooses to buy the
food the opportunity cost for his decision will be the benefit enjoyed from going out to the
movies with his friends.But if he chooses to spend his money i.e the $50 left on buying food,the
opportunity cost will be the benefit enjoyed by going out to the movies with his friends.
, Moreover,there are two types of opportunity cost- increasing opportunity cost and constant
opportunity cost.Increasing opportunity cost is when the opportunity cost increases as more is
produced.It is represented as a concave PPC graph.
At point B,the economy can produce 20000 breads and 1500 laptops but as the economy shifts
from operating at point b to point c ,it is now producing 40000 breads and 1000 laptops.So
