Transcription of Chapter 1
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Chapter 1 Answers to exercises1 The fundamental economic problem occurs because resources have to be allocated amongst competing uses since wants are infinite whilst resources are You and your family: unless you are very wealthy, you and your family will never have enough money/income to satisfy all of your wants. For example, you might want to go to see a film but do not have enough money to do so; your family may want to buy the latest flat-screen TV but does not have enough spare income to purchase Government: all governments face the economic problem since they never have enough money in their budgets to be able to fund all of the wants that are required. As a result choices and priorities have to be made. Typical choices to be made are, for example, between spending more on an infant health programme or on an infant educational programme. The limited budget means that both cannot be Manufacturing business: revenue and capital funds for any business are limited either through what is available inside a business or what can be borrowed outside.
Essay questions 1 The diagram below shows typical production possibility curves (PPCs). B 1 B 2 B 3 B 4 B 5 PPC 1 PPC 2 X Y Z A 1 A 4 A 5 A 3 A 2 0 Good B Good A Figure A1.2 Production Possibility Curves PPC 1 shows the various possible combinations of the two goods, A and B, that can be produced. Any point on this curve is the maximum possible output when all available …
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