2023 ACJC Central Economic Problem Lecture Notes

©ACJC Economics Dept/2022/H1H2 The Central Economic Problem 1 ANGLO-CHINESE JUNIOR COLLEGE JC1 Economics 2023 H1 H2 THE CENTRAL ECONOMIC PROBLEM Section Content Page 1 Scarcity as the Central Economic Problem 5 1.1 Scarcity, Choice and Opportunity Cost 5 2 Decision Making in Economics 9 2.1 Decision-Making Process of Economic Agents 2.2 Cognitive Biases 9 13 3 Production Possibility Curve 15 3.1 Diagrammatic Representation 3.2 Productive Capacity 3.3 Attainable and Unattainable Points 3.4 Movement of Resources Between Uses 3.5 Shifts of the PPC 15 15 16 16 18 4 Applications of Production Possibility Curve 19 4.1 Attainable Standard of Living 4.2 Economic growth, Unemployment and Under- employment 4.3 Trade-offs Between Consumption and Investment 19 20 21 Learning Reflection & Annex 23 Reference Texts (Optional): 1. Sloman, Garratt & Guest, Economics 10th Edition, 2018, Pearson, Chapter 1. 2. Mankiw, Quah & Wilson, Principles of Economics, An Asian Edition, Cengage Learning, 2ND Edition, 2013, Chapters 1 & 2

©ACJC Economics Dept/2022/H1H2 The Central Economic Problem 2 WHAT IS THIS TOPIC ABOUT? This topic is an introduction to the subject of Economics. Economics is much more than just a body of concepts, principles and theories. It is a way of thinking. It will equip you with the understanding of the rationale underlying the decisions which individuals, businesses and governments make about what to do with their resources, such as time and income. Essentially, in all decisions we (consumers or producers) want to maximise the returns (or benefits we enjoy) in exchange for what we have to pay for or use up. For e.g. as consumers, we will look for the lowest price of a certain good (or minimise the costs) so that we can have the best outcomes in return for the money we spend; and as business owners , we want to produce the most output from a given amount of resources used. For students to understand the most essential ideas in every topic, it is very important to carefully read and u nderstand the learning outcomes below. When you end this lecture series, revisit these learning outcomes to check whether you have achieved them. If you have not, do not delay in asking your tutor for explanation or clarification . It is also important for you to answer the Essential Question and use the checklists provided because it will help you check your understanding as well as tie together all the key ideas in this topic LEARNING OUTCOMES Enduring Understanding: Students are to understand and note the following:  The central economic problem of scarcity arises because i ndividuals, firms, and governments have unlimited wants whereas the resources available for meeting these wants are limited.  Due to the conflict between unlimited wants and scarce resources, choices have to be made.  Choices are made by various economic agents to maximise their self- interest.