Introduction

After you have worked through this section of the learning unit, you should be able to:

  • identify a position of scarcity using the production possibilities curve

Scarcity exists because there are not enough resources to satisfy unlimited needs and wants. Given the production possibilities curve for Zanadu we know that this country can produce combinations such as A, B, C, D, E and F. What it cannot produce, given its resources and the efficiency of these resources, is a combination such as 5 500 laptops and 28 000 mobile phones.

Zanadu would certainly like to produce at a point such as point G1 because it would have more mobile phones and laptops, but this is not possible because the country does not have enough resources. Points G1, G2, and G3 therefore represents scarcity and lies outside the production possibilities curve.

Points on the production possibilities curve (A,B,C,D,E,F) indicate the possible or attainable combinations of laptops and mobile phones and can therefore be regarded as potential output. These points also indicate the boundaries of production.

To reach any point outside the production possibilities curve such as G1 or G2 or G3, Zanadu would need more resources and / or increase the efficiency of its current resources.

Activity

Do the following activity to make sure you understand positions of scarcity:

Based on the information below, a politician concluded that in the current period the country of Paradiso could produce a combination of 1 000 tons of food and five million guns.

Combination Food (tons) Guns (millions)
A 1 000 0
B 900 1
C 750 2
D 550 3
E 300 4
F 0 5

Which one of the following will be your response?



Think again. You should disagree.

It is true that 1 000 tons of food and five million guns are points on the production possibilities curve. What is not true is the fact that it is possible to produce a combination of 1 000 tons of food and five million guns. Paradiso can produce 1 000 tons of food or five million guns, but not both.

A combination of 1 000 tons of food and five million guns lies outside the production possibilities curve and represents scarcity.

You should indeed disagree.

It is true that 1 000 tons of food and five million guns are points on the production possibilities curve. What is not true is the fact that it is possible to produce a combination of 1 000 tons of food and five million guns. Paradiso can produce 1 000 tons of food or five million guns, but not both.

A combination of 1 000 tons of food and five million guns lies outside the production possibilities curve and represents scarcity.