1. Prepared By:-
KVS, Delhi Region
An introduction to Economic Problems

2. Prepared By:-
KVS, Delhi Region
ROBBINS DEFINITION OF ECONOMICS
The science which studies
human behaviour as a
relationship between ends and
scarce means which have
alternate uses.

3. Prepared By:-
KVS, Delhi Region
Problem of Choice
• Which wants should be satisfied ?
• To which use should a resource be put ?
– Resources have alternate uses
– Eg:- Tomatoes used - Juice
- Sandwich
- Vegetables
- Salad
Alternate
uses
Resource

4. Prepared By:-
KVS, Delhi Region
Basic Economic Problem
• Human wants are Unlimited wants
• Scarce resources
– Land
– Labour
– Capital
• Scarcity implies insufficient availability of resources to
meet all wants
• Scarcity leads to problem of choice

5. Prepared By:-
KVS, Delhi Region
CENTRAL PROBLEMS ARE THE SAME IN
ALL DIFFERENT ECONOMIC SYSTEMS
• Capitalistic Economy
• Socialistic Economy
• Mixed Economy

6. Prepared By:-
KVS, Delhi Region
Central Problems of an Economy
What to produce
and what
quantities
• Should the emphasis be on agriculture, manufacturing
or services
• Should the economy produce public goods or
private goods
• How much of the chosen goods and services should be
producedS
PROBLEM OF
ALLOCATION
OF
RESOURCES

7. Prepared By:-
KVS, Delhi Region
For whom to produce ?
DISTRIBUTION OF FACTOR
INCOME TO RESOURCES

8. Prepared By:-
KVS, Delhi Region
How to produce ?
PROBLEM OF CHOICE OF
TECHNIQUE OF
PRODUCTION
• LABOUR INTENSIVE
• CAPITAL INTENSIVE

9. Prepared By:-
KVS, Delhi Region
Opportunity Cost
• Defined as the benefit lost in terms of the next
best alternative foregone when a choice is
made.
• Helps view the true cost of decision making.

10. Prepared By:-
KVS, Delhi Region
Other Problems
Problem of Fuller Utilization of Resources
• Resources should be used to full potential
• There should be no wastage
• Resources should be utilised efficiently
– An ‘efficient method of production’
• Least resources required for a given output
• Maximum output obtained for given resources
Production techniques to produce
10 litres of ice cream
Production Labour Capital
Technique
A 5 4
B 5 5
C 6 4
D 6 6
Output produced using 4 units
of capital and 5 units of labour
Production Output
Technique (in litres)
A 10
B 8
C 7
D 6
Option A is the most efficient method of production

11. Prepared By:-
KVS, Delhi Region
Other Problems
Growth of Resources
• Resources can increase if there is:
– An increase in the quantum of resources
• Eg: New reserves of crude oil found
• Increase in labour
– Improvement in productivity
• Training labour to improve skills
• Improvements and advancements in technology

12. Prepared By:-
KVS, Delhi Region
Production Possibility Curve
Depicts all possible combination of two goods that an economy can
produce with full and efficient utilization of given resources and state
of technology
0 X
R
Quantity of wheat per week
Quantityoftankperweek

13. Prepared By:-
KVS, Delhi Region
Production Possibility Curve
Depicts all possible combination of two goods that an economy can
produce with full and efficient utilization of given resources and state
of technology
0 X
R
Quantity of wheat per week
Quantityoftankperweek
Pt R – all
resources used to
produce tank

14. Prepared By:-
KVS, Delhi Region
Production Possibility Curve
Depicts all possible combination of two goods that an economy can
produce with full and efficient utilization of given resources and state
of technology
0 X
R
Quantity of wheat per week
Quantityoftankperweek
Pt X – all
resources used to
produce wheat

15. Prepared By:-
KVS, Delhi Region
Production Possibility Curve
Depicts all possible combination of two goods that an economy can
produce with full and efficient utilization of given resources and state
of technology
0 29 X
5
R
S
Quantity of wheat per week
Quantityoftankperweek
Pt S – one
combination of
two goods that
can be produced

16. Prepared By:-
KVS, Delhi Region
Production Possibility Curve
Depicts all possible combination of two goods that an economy can
produce with full and efficient utilization of given resources and state
of technology
0 29 70 X
3
5
R
S
U
Quantity of wheat per week
Quantityoftankperweek
Pt U – one
combination of two
goods that can be
produced

17. Prepared By:-
KVS, Delhi Region
Features of PPC•No ‘ideal’ point on the curve
– All points on the PPC are equally efficient
– Economy needs to choose the point of operation
0 29 70 X
3
5
R
S
U
Quantity of wheat per week
Quantityoftankperweek

18. Prepared By:-
KVS, Delhi Region
Features of PPC
• More of one good means less of the other along the PPC
0 29 P
5
P
S
Quantity of wheat per week
Quantityoftankperweek
Initial point S

19. Prepared By:-
KVS, Delhi Region
Features of PPC
• More of one good means less of the other
along the PPC
0 29 P
P
5
S
Quantity of wheat per week
Quantityoftankperweek
Increasing output of
wheat

20. Prepared By:-
KVS, Delhi Region
Features of PPC
• More of one good means less of the other
along the PPC
0 29 70
3
5
S
U
Quantity of wheat per week
Quantityoftankperweek
P
P
Decreases output of
tank

21. Prepared By:-
KVS, Delhi Region
Features of PPC
• Marginal opportunity cost (MOC) increases as we move along the PPC
– MOC is the amount of one good that needs to be sacrificed per unit
increase in production of the other good
0
Quantity of wheat per week
Quantityoftankperweek
P
P
Given PPC - PP

22. Prepared By:-
KVS, Delhi Region
Features of PPC
• Marginal opportunity cost (MOC) increases as we move along the PPC
– MOC is the amount of one good that needs to be sacrificed per unit
increase in production of the other good
0 7
10
A
Quantity of wheat per week
Quantityoftankperweek
P
P
Initial production
point A

23. Prepared By:-
KVS, Delhi Region
Features of PPC
• Marginal opportunity cost (MOC) increases as we move along the PPC
– MOC is the amount of one good that needs to be sacrificed per unit
increase in production of the other good
0 7
10
A
Quantity of wheat per week
Quantityoftankperweek
P
9.5
8 P
When output of wheat
increases by 1 unit, output
of tank reduces by 0.5
unit

24. Prepared By:-
KVS, Delhi Region
Features of PPC
• Marginal opportunity cost (MOC) increases as we move along the PPC
– MOC is the amount of one good that needs to be sacrificed per unit
increase in production of the other good
0 7 12
5
10
A
B
Quantity of wheat per week
Quantityoftankperweek
P
9.5
8 P

25. Prepared By:-
KVS, Delhi Region
Features of PPC
• Marginal opportunity cost (MOC) increases as we move along the PPC
– MOC is the amount of one good that needs to be sacrificed per unit
increase in production of the other good
• Increasing MOC arises due
to difficulty is substituting
factors in production process
• Gives rise to concave shape
of PPC
0 7 12
5
10
A
B
Quantity of wheat per week
Quantityoftankperweek
P
9.5
3.5
8 13 P

26. Prepared By:-
KVS, Delhi Region
Features of PPC
• A point inside the PPC reflects
– Under utilisation of resources
– Unemployment of resources
– Inefficient allocation of resources
0 P
P
Quantity of wheat per week
Quantityoftankperweek
C
• Initial PPC – PP
• Take a pt C inside the PPC

27. Prepared By:-
KVS, Delhi Region
Features of PPC
• A point inside the PPC reflects
– Under utilisation of resources
– Unemployment of resources
– Inefficient allocation of resources
0 7 P
5
P
Quantity of wheat per week
Quantityoftankperweek
C
At point C output of wheat
is 7 units and tank is 5
units

28. Prepared By:-
KVS, Delhi Region
Features of PPC
• A point inside the PPC reflects
– Under utilisation of resources
– Unemployment of resources
– Inefficient allocation of resources
0 7 P
5
P A
Quantity of wheat per week
Quantityoftankperweek
C

29. Prepared By:-
KVS, Delhi Region
Features of PPC
• A point inside the PPC reflects
– Under utilisation of resources
– Unemployment of resources
– Inefficient allocation of resources
0 7 P
5
P A
B
Quantity of wheat per week
Quantityoftankperweek
C

30. Prepared By:-
KVS, Delhi Region
Features of PPC
• A point inside the PPC reflects
– Under utilisation of resources
– Unemployment of resources
– Inefficient allocation of resources
0 7 P
5
P A
B
Quantity of wheat per week
Quantityoftankperweek
D
C

31. Prepared By:-
KVS, Delhi Region
Features of PPC
• Point outside the PPC is unattainable
given existing resources
0
A
Quantity of wheat per week
Quantityoftankperweek
P
P

32. Prepared By:-
KVS, Delhi Region
Features of PPC
• Point outside the PPC is unattainable
given existing resources
• Can be achieved with growth of
resources
Resources grow by
• Increase in quantum
of resources
• Improvements in
productivity
0
A
Quantity of wheat per week
Quantityoftankperweek
P
P

33. Prepared By:-
KVS, Delhi Region
Features of PPC
• Point outside the PPC is unattainable given existing
resources
• Can be achieved with growth of resources
• Reflected by an outward shift in PPC
Resources grow by
• Increase in quantum
of resources
• Improvements in
productivity
0
P’
A
Quantity of wheat per week
Quantityoftankperweek
P P’
P

34. Prepared By:-
KVS, Delhi Region
Questions for Self- Evaluation
• Define marginal opportunity cost.
• Why does an economic problem arise ?
• What are the basic problems of an economy?
• Explain the problem of “how to produce “
with the help of an example.
• Explain the central problem of “For whom to
produce “
• Why is PP curve concave in shape?

35. Prepared By:-
KVS, Delhi Region
Mrs. Anita Bhardwaj KV,
Vigyan Vihar
Mrs .Monika Bajaj KV, Tagore
Garden
Mrs. Leena Singh KV, AGCR
Mr. Sri Keshav KV, no.2 Delhi
Cantt
Mrs .Ritu Tanwar KV, AFS
Rajokri
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