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Introduction of Economic Development

This document provides an overview of key economic concepts related to scarcity, production possibilities, and supply and demand. It discusses: 1) Scarcity of resources and how this requires societies to make choices about what to produce and how to allocate output. 2) The production possibilities curve model which shows the maximum amounts of two goods an economy can produce given scarce resources and illustrates opportunity cost. 3) How economic growth can shift the production possibilities curve outward by increasing resources or technology. 4) How prices determine distribution of goods in a market economy based on supply and demand, where demand depends inversely on price and supply depends directly on price according to their respective curves and laws.

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27 views

Introduction of Economic Development

This document provides an overview of key economic concepts related to scarcity, production possibilities, and supply and demand. It discusses: 1) Scarcity of resources and how this requires societies to make choices about what to produce and how to allocate output. 2) The production possibilities curve model which shows the maximum amounts of two goods an economy can produce given scarce resources and illustrates opportunity cost. 3) How economic growth can shift the production possibilities curve outward by increasing resources or technology. 4) How prices determine distribution of goods in a market economy based on supply and demand, where demand depends inversely on price and supply depends directly on price according to their respective curves and laws.

Uploaded by

fabyunaaa
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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INTRODUCTIO

N OF
ECONOMIC
DEVELOPMEN
T
Economics and Scarcity
Resources
 (land, labor, factory buildings, timber, minerals,
machinery, and the like) are the basis for producing the
food, shelter, medical care, and luxury goods that we
want.
 Even when using all resources as efficiently and
completely as possible, and using all modern technology
to its fullest extent, there is some limit to the amount we
can currently produce.
Resources (cont)

 Scarcity forces us to choose among competing uses for


society’s resources. What to produce and how to
distribute this output to society s citizens are the most
basic economic choices to be made.
 The easiest way to think about the problem of societal
choice is by looking at a basic economic concept and
graph caDed production possibilities.
Resources (cont)

 Production possibilities shows the maximum


amounts of two different goods that can possibly be
produced during any particular time period using
society’s scarce resources.
In examining production possibilities, we must make these
simplifying assumptions about our economy:
1. All available resources are used fully.
2. All available resources are used efficiently.
3. The quantity and quality of available resources are not changing during
our period of analysis.
4. Technology is not changing during our period of analysis.
We can produce only two goods with our available resources and
technology.
First,all available resources are used fully, so that
no workers are unemployed, no factory buildings
sit idle, and so forth. (This does not mean that we
fail to conserve some of our resources for the
future. If we think that the habitat of the snowy owl
is important ecologically, we simply do not make
that part of the available resources
Second, efficiency means that we use our
knowledge and technology to produce the
maximum amount of output with these resources.
These first two assumptions mean that our
economy is doing the best that it can; it is
operating fully and efficiently.
Third, the quantity and quality of our resources
are not changing. This means that over the current
time period, workers do not begin new training
programs to make them more productive, new
natural resources are not discovered, and so on.
The next assumption is similar. Technological
change—which might give us a better means of
producing more goods with the same resources—
is not occurring. We make these last two
assumptions to deal with the world as it is right
now, and not how it might become in the future
And finally, to simplify our analysis (and because here we
graph in only two dimensions), we assume that we can produce
only two goods with our resources.

Ex. 150 units of bread


120 tons of roses
We had to give up 30 tons of breads for 20 tons of roses
A number of important concepts are illustrated by
the production possibilities curve. The most basic
concept is that there is some limit to what we can
produce. Thus, to produce more of one good, we
must give up production of something else. This
reality is what economists refer to as opportunity
cost.
Opportunity cost is the best alternative that is
forgone to produce or consume something else.
 The opportunity cost of producing roses is not
measured in dollars but in the bread that we give up
when we produce these roses.
 And the opportunity cost of producing bread is the
roses we give up when we produce this bread.
The second economic concept that is illustrated by
production possibilities is that of unemployment.
 In reality, some resources may go unused: factories
are idle and workers are laid off. Nor do we always
use resources in the most efficient manner.
 We could do much better by putting idle resources to
work and moving our way back out to the
production possibilities curve.
Economic growth may occur if the quality or
quantity of society’s resources increases, or if new
technologies are developed so that we can produce
more output with our available resources.
Figure 1.2. Such a shift would enable us to move to a point such as point G (representing growth) on the
new production possibilities curve. Clearly, point G (with 80 tons of roses and 90 tons of bread) is superior
to a point such as D (with 60 tons of roses and only 60 tons of bread) on the original curve. Such growth is
possible only over time, and not in the current time period illustrated by the first production possibilities
curve.
Economics and
Distribution
In market based economy such us ours, the
choises of the choices of distribution as well
as production are based primary on prices.
And prices are determined by demand and
supply.
Demand and Supply

Demand- is the willingness of a consumer to buy a commodity at


a given price.

A demand schedule shows the various quantities the consumer


is willing to buy at various prices.
A demand function shows how the quantity demanded of a
good depends on its determinants, the most important of which is
the price of the good itself thus, the equation; Qd = f(P)
Table 2.1. Hypothetical Demand Schedule of Martha for Vinegar
(in bottles)

Price per bottle Number of bottles


P0 6
2 5
4 4
6 3
8 2
10 1
EXAMPLE Qd Computation:
Price Quantity
Given: Qd= 30-2P
0 30
Qd= 30-2(0) 3 24
Qd= 30-0
Qd = 30 7 16
14
Qd= 30-2(3)
Qd=30-6 20
Qd= 24
31
Hypothetical Demand Curve of Martha for Vinegar (in bottles) for One Month
After observing the behavior of price and
quantity demanded in the above schedule, we
can now state the Law of Demand.
As price increases, the quantity demanded for
that product decreases.
Supply refers to the quantity of goods that a seller is willing
to offer for sale.

The supply schedule shows the different quantities the


seller is willing to sell at various prices.

The supply function shows the dependence of supply on the


various determinants that affect it
Assuming thatthe supply function is given as: Qs = 100 +
5P and is used to determine the quantities supplied at the
given prices.

Table 2.2: Supply Schedule of Pedro for Fish in One


Week
Price of Fish (per Kilo) Supply (in kilos)
P20 200
40 300
60 400
80 500
100 600

As can be seen in Table 2.2, the relationship between the price offish and the
quantity that Pedro is willing to sell is direct. The higher the price, the higher
the quantity supplied.
After observing the behavior of price and quantity
supplied in the above schedule, we can now state
the Law of Supply.
As the price increases, the quantity supplied of that
product also increases.
Figure 2.3. Supply Curve of Fish of Pedro for One Week
We derive a supply curve that is upward sloping, indicating the direct relationship
between the price of the good and the quantity supplied of that good.
Thanks!

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