Question

Explain the concepts of choice, scarcity and opportunity cost with the help of a
production possibility curve.

Answer 1

Concept of scarcity :-

→ It simply refers to the situation when what you have is less than what you wish to have.

→ Scarcity implies a situation when if we want to increase the production or consumption of one good then we have to decrease the production or consumption of the other good.

[ Refer to the figure 1 ]

It revealed by the fact that any movement along the PPC like moving from point D to F shown in the figure.

So if if we want to increase the resources resources in good X then we have to decrease the resources in good Y .

This is is because that the resources are limited or scarce.

Concept of Choice :-

→ Choice refers to the process of selection from the available limited alternative. It images because of resource are limited and resource can be allocated to alternative uses.

Now if we show this through PPC curve, then we know that our resources are limited so what quantity of a good we want to choose is bound .

If which was good X then we have to to decrease the consumption of good Y .

This is similar to the the first concept somehow

[Refer to the Figure 1 ]

Concept of opportunity cost :-

Opportunity cost refer to the value of a factor in its next best alternative use.

[Refer to the figure 2. ]

As shown in the figure production possibility curve AB . Y - axis shows use one and x axis shows used to of a given set of resources. The diagram is drawn on the assumption that technology remains constant and that the resources are fully utilised.

Value of output in use one is assumed as rupees 12000 and in use to as rupees 10000 if resources are employed in use one the opportunity cost will be 10,000 that is the value of the factor in its next best alternative use .