Easy on Economics

  PRODUCTION POSSIBILITY CURVE   It is known that wants of people are unlimited and the resources to fulfill those wants are not only limited but have alternative uses as well. Hence, this poses a problem of which wants to be fulfilled. What are Production Possibilities?  Nations as a whole also face the same problem of choice. The total resources available to a nation are limited while the  people in a nation have not only unlimited wants but the wants are varied as well ; for example land resources, mineral resources, labour, capital etc. are limited in a nation. Some nations may have more resources than others, but still the resources available to them are not unlimited. So, the problem which nations face is how to distribute these resources into the production of different goods and services; or to state in other words how to allocate these resources for the production of various goods and services so that maximum wants of the people are satisfied. A given combination of resou

  Consumer Goods, Capital Goods, Intermediate Goods After the production of a good or service, the next aim of the producer is to sell the good to the consumer. The consumer can be an individual or a firm; and the good when sold to the consumer can be consumed as it is or the good can be transformed into another good with the help of a productive process such as a machine.  For example, when wheat is sold to a flour mill, it is converted into flour through the use of machinery. When a good is transformed into another good like in the case of wheat, it loses its specific characteristic during the production process.   Such type of a good is known as intermediate good. When the goods are not further transformed into other goods, and are used as it is, it is known as final goods. So, the final goods are those which do not pass through any further production process or transformation and are used as it is by the consumers. The final goods can be of two types- Consumer goods and Capital

  In their day-to-day life, people face many trade-offs , i.e., they have to let go off one option when they choose the other one. Which, option or alternative a person will choose depends apart from his/her preferences upon opportunity cost. In other words, Trade-offs are measured by opportunity costs. Understanding Opportunity Costs In simple, terms Opportunity Cost is the value of the next best alternative forgone, i.e., what is the value of that alternative or option which a person had to let go in order to get the other one. Examples   Let’s say a farmer has a piece of land on which he can grow either wheat or rice. For simplicity, we assume that the price of each crop is Rs 20 per kg. With this piece of land, the farmer can produce either 50 kg of wheat or 40 kg of rice. Based on this, we will find what trade-off the farmer faces, and what is the opportunity cost of producing one crop over the other crop.  If the farmer decides to produce wheat on the entire land, he has to l

  TRADE-OFFS  Economics is concerned with people making decisions. However, these decisions are not always easy to make as making a decision involves making a choice. This choice may be between different alternatives/goals/options. Generally, choosing one goal means not being able to choose the other one. This results in what we call a trade-off where in order to choose one thing we have to let go or sacrifice the other one. Examples of Trade-Offs:  P eople face numerous trade-offs in their daily lives. Let’s say a person wants to reach his office. He may either go by car or bicycle. Going by a bicycle is not only environmentally friendly but also is a good exercise. However, going by a car will save time and make him reach faster. This is a situation of trade-off where the person has to choose an option and in choosing one, he will be giving up the other one. A family which has a limited monthly budget has to decide whether to spend that money on a vacation, saving for their chil