Work through the basic economic problem by connecting scarce resources, factors of production, opportunity cost and production possibility curves to real choices.
A government wants to build a new hospital.
What is most likely to prevent the government from doing this?
People in the country cannot afford healthcare.
People in the country would go abroad for healthcare.
The government cannot agree how big the hospital should be.
The government does not have enough money.
Read the source material carefully before answering Question 1.
Source material: Changes in the Malawian economy
Malawi is a low-income East African country. It is often affected by natural disasters including droughts, floods and storms. In January 2022, Malawi was hit by Storm Ana. This damaged agricultural crops, factories, forests and power stations.
More than three-quarters of Malawi's labour force are employed in agriculture. Two of the country's main crops are tea and sugar. The quantity of tea offered for sale is affected by weather conditions, government subsidies and the price of fertilisers. The global market for sugar has been affected by health reports which identified the possible harmful effects of consuming too much sugar.
Three of the priorities of the Malawian Government are to develop new industries, raise education standards and develop more sustainable sources of energy. The proportion of Malawian children who finish their primary education ( 5-11 years of age) is relatively low. Table 1.1 shows GDP per head and the percentage of children who complete primary education in selected countries in 2022.
Table 1.1 GDP per head and the percentage of children who complete primary education in selected countries in 2022
Only a small proportion of Malawi's population has access to electricity. Most households rely on wood and charcoal for cooking and heating. Using wood as a fuel contributes to the destruction of the country's forests and reduces air quality. The country does, however, get 3000 hours of sunshine a year. This means it could develop solar energy. There would be an initial cost to install solar panels and to reduce the risk of storm damage. Solar energy plants (also known as solar farms) can take up a large area and create visual pollution. However, a successful solar energy industry could decrease Malawi's imports of fuel and might affect its exchange rate.
Malawi's foreign exchange rate fell in 2022. The country's currency, the kwacha, bought fewer US dollars. This depreciation affected Malawi's current account of the balance of payment, its inflation rate and its economic growth rate. Some economists suggested that the Malawian Government should stop the kwacha falling further in value.
Identify two capital goods used in Malawi.
Explain what is likely to have happened to Malawi's production possibility curve (PPC) in January 2022.
Which value does opportunity cost measure?
environmental damage
next best alternative forgone
output of labour
price paid
In 2022, Paraguay's production possibility curve (PPC) shifted to the right. Paraguay has a mixed economic system. Its government provides merit goods and public goods. The country's private sector is a major producer of shampoo. The firms in the shampoo industry make use of division of labour. There are several firms in the industry, but the number is declining. There is a possibility that soon there may be just one firm in the industry.
Identify what is measured on the axes of a production possibility curve.