EJC Econs N2023 H2 EQ1 - students

2023 H2 A Level Paper 2 Question 1 The amount of goods and services that can be produced in an economy is insufficient to satisfy the wants of its population. This leads to the economic consequences of scarcity and choice. (a) Explain how a production possibility curve can be used to show the concepts of underutilisation of economic resources and opportunity cost. [10] (b) Discuss whether it is possible to increase the total production of goods and services in an economy without resulting in environmental damage or other unintended consequences. [15] Part (a) (Question Analysis) Approach Command Word Explain how – Explain the process Start point N.A. End Point N.A. Content and Context Content • Production possibility curve (PPC) • Utilisation of resources • Opportunity cost Context Generic Suggested Response Introduction The production possibility curve (PPC) is a curve that shows all the possible combinations of the maximum quantity of two goods that a country can produce within a specified period of time with all its resources fully and efficiently employed at a given state of technology. Requirement (1) – Explain how PPC illustrates underutilisation of resources • The assumptions of the PPC are: o All available resources (labour, land, capital and entrepreneurship) are used to produce only two goods – e.g. consumer goods and capital goods. o Within the given time period, the quantity and quality of resources remain the same. o Resources are fully and efficiently employed to produce the goods. o Within the given time period, the level of technology remains the same. Figure 1: Production Possibility Curve (PPC) F D B A C E G Units of capital goods Units of consumer goods 0 1 2 3 4 5 H 20 19 17 14 9

• Point H, which is within the PPC , illustrates underutilisation of available resources , since more consumer and capital goods could have been produced by utilising more of the available resources. Hence, an inability to achieve the maximum possible level of production of both consumer and capital goods. Requirement (2) – Explain how PPC illustrates opportunity cost • The PPC can illustrate the concepts of scarcity, choice and opportunity cost. In view of scarcity, economic agents have to make choices on the allocation of resources. When choices are made, opportunity costs are incurred as the production or consumption of other goods and services will be forgone. • Opportunity cost is defined as the value of the next best alternative forgone. It is reflected by the downward sloping PPC. • With reference to Figure 1, assuming that the economy was initially producing on point D where the limited amount of resources has been fully and efficiently employed. If the economy chooses to produce an additional unit of capital good (e.g. 4 units instead of 3 units of capital goods), it will need to give up some units of consumer goods (i.e. produce 9 units