TMJC 2023 A Level H2 EQ1_AP Answers

2023 A Level H2 Economics Suggested Answers to Paper 2 EQ1 © TAMPINES MERIDIAN JUNIOR COLLEGE 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] Suggested Answer to Part (a): Requirement 1: How a PPC shows the concept of underutilisation of economic resources The Production Possibility Curve (PPC) outlines all possible combinations of 2 goods that could be produced by an economy assuming the full and efficient utilisation of a fixed quantity of resources such as land, labour, capital and enterprise in a given state of technology. Assuming that an economy produces 2 kinds of goods – capital goods and consumer goods – its PPC is as illustrated below: Points inside the PPC such as U show combinations of capital goods and consumer goods that the economy produces when it underutilises its fixed quantity of resources. At U, the economy produces Cx quantity of consumer goods and Kz quantity of capital goods. U represents an underutilisation of resources because the economy could have produced more capital goods at Kx (and produce the same amount of consumer goods at Cx) by operating instead at X, or produced more consumer goods at Cz (and produce the same Capital Goods Consumer Goods 0 PPC X Y Z Kx Ky Kz Cx Cy Cz U L M PPC 1

2023 A Level H2 Economics Suggested Answers to Paper 2 EQ1 © TAMPINES MERIDIAN JUNIOR COLLEGE of amount of capital goods at Kz) by operating instead at Z, or produce more of both goods at Cy and Ky by operating at Y. Therefore, points inside the PPC represent an under-utilisation of economic resources because resources could be utilised more fully and efficiently in order to increase production towards the PPC which represents the economy’s productive capacity i.e., the maximum quantities of output that it can produce at full employment. Requirement 2: How a PPC shows the concept of opportunity cost Scarcity arises as a consequence of unlimited wants but limited resources. As limited resources are insufficient to satisfy unlimited wants, choices need to be made regarding which wants to satisfy and which wants to forgo. Opportunity cost refers to the value of the next best alternative forgone when a choice is made. With respect to the PPC diagram shown earlier, as the economy chooses to move from X to Y and increase the pr