Microeconomicos

The economy might not be able to produce all the schools and beds it wants because there is a fundamental economic problem that society faces known as Scarcity. “Scarcity is the situation in which unlimited wants exceed the limited resources available to fulfil those wants” (Hubbard, Garnett, Lewis, O’Brien, 2011, Microeconomics, 2nd Edition, Pearson Education, Australia). Therefore, because of this confrontation, economic decisions must be made to allocate resources efficiently. In this case there is a need to analyse two conflicting key policies.

• First, a request of 6 new technical schools to educate and develop the skills of young people and

• Second, the production of 5000 new hospitals beds to reduce hospital waiting lists.

The constraints or limitations in an economy’s production are dictated by the availability of resources to produce the desired amount of products or services at the same time. Resources or factors of production include;

a) Natural resources such as land, water, minerals and raw materials

b) Labour or human capital which is the physical effort combined with the knowledge and skills of the workforce. (Anderson, David. Cracking the AP Economics Macro Micro Exam. Princeton Review, NY, pp. 35)

c) Capital such as equipment, machinery, buildings

d) Entrepreneurship which is the ability to operate a business

b)

In Economy when we use resources to produce one good or service, the opportunity cost is the limitations to produce another good or service. “Opportunity cost is the value of the best alternative to what actually takes place” (Anderson, David. Cracking the AP Economics Macro Micro Exam. Princeton Review, NY, pp. 36). This situation can be illustrated in a curve called Production Possibility Frontier (PPF). In this case the PPF is outward curved because when we move resources from one policy to another there will be a tendency to move the less specialised resources first thus, not affecting the production of hospital bed greatly. As more resources are required to build technical schools more specialised resources in the hospital industry will need to be shifted from it thus, a greater reduction on the production of hospital beds will follow. Furthermore, the slope of the curve becomes more significant due to the fact that more and more resources are being used to build technical school less efficiently. In other words, the curve illustrates an important economic concept: the more resources already devoted to building technical schools, the smaller the gains to devoting additional resources to this activity (Hubbard, Garnett, Lewis, O’Brien, 2011, Microeconomics, 2nd Edition, Pearson Education, Australia, pp. 35). A Straight line PPF is obtained when there is no sacrifice in resources from one activity to another thus, the opportunity cost remains constant.

It is right to assume that the economy could not produce 6 schools and 5,000 beds at once, because as shown in the graph the total resources available to the economy ,at this time, are just not enough to satisfy both policies, as this combination sits outside the curve.

c) Efficiency is when all the resources available are being used to produce

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