Rubrics
A rubric is a scoring tool for subjective assessments. It is a set of criteria and standards linked to learning objectives that is used to assess a student's performance on papers, projects, essays, and other assignments. Rubrics allow for standardised evaluation according to specified criteria, making grading simpler and more transparent.
The rubric is an attempt to delineate consistent assessment criteria. It allows teachers and students alike to assess criteria which are complex and subjective and also provide ground for self-evaluation, reflection and peer review. It is aimed at accurate and fair assessment, fostering understanding and indicating the way to proceed with subsequent learning/teaching. This integration of performance and feedback is called "ongoing assessment."
Increasingly, instructors who rely on rubrics to evaluate student performance tend to share the rubric with students at the time the assignment is made. Flash (2009) states that “When students are apprised of grading criteria from the start, they can be more involved in the process of working toward success.”In addition to helping students understand how the assignment relates to course content, a shared-rubric can increase student authority in classroom, through transparency. Furthermore, rubrics reduce the amount of time teachers spend grading student work. [1]
The following common features of rubrics can be distinguished, according to Bernie Dodge and Nancy Pickett:[citation needed]
focus on measuring a stated objective (performance, behavior, or quality)
use a range to rate performance
contain specific performance characteristics arranged in levels indicating the degree to which a standard has been met.
Friday, May 7, 2010
Thursday, May 6, 2010
Web quest--------(Redesigning the School Store)
What is a WebQuest?
A WebQuest is an inquiry-oriented lesson format in which most or all the information that learners work with comes from the web. The model was developed by Bernie Dodge at San Diego State University in February, 1995
A WebQuest is an inquiry-oriented lesson format in which most or all the information that learners work with comes from the web. The model was developed by Bernie Dodge at San Diego State University in February, 1995
Introduction
Have you ever found yourself in the school store looking for something only to find that the school doesn't even sell it? Well, now it’s up to you to design a new item to be sold in the store. Think about: What would it be? How much would it cost? Who would buy it? Is it useful for school?
In order to create your new item, you are going to need to explore the world of economics. What is economics? How does it affect me? When you make a choice to do something, do you think about the pros and cons of the action before doing it? Do you think about the effects your action(s) will have on yourself or others? Well…it’s time to find out.
The Task'
After learning about economics using the Web, it will be time for you to put your heads together, use your imaginations and produce a good or service for the consumer at the school store. What you have always wanted to buy after lunch when you have time to go to the store?
Your design team will take part in researching the basic facts about economics so that you create the best product for your school store. You must consider who your target audience is so that you can create something that will sell and create the most profit.
The Process
Before you start designing your product, you must explore the Web to find out background information about the study of economics. This will help you determine what types of products or services will be the best item for both the school and the school store.
1. Explore the following web sites on the Internet (as a group):
Welcome to Econopolis!
It is time for you to complete an interactive activity to learn about goods and services before you choose what you are going to create for the store.
At this site, you must read the description so that you know what goods and services are, and then as a group try to choose the right answers to the questions. While you are working, you will need to fill out the worksheet so you have notes to use as references when creating your good or service for the school store.
Have Fun!!!
http://library.thinkquest.org/3901/amanda/gsfarm.htm
Who are PRODUCERS?
Now, you are going to participate in an interactive activity that will teach you about producers. Who is a producer? What types of things do producers produce?
With your group, watch the following video (to get to the next page, click on the arrow at the bottom of the screen Þ)…listen carefully while following along with what the man says, then do the matching activity in order to keep going with the video.
Go learn about producers!
http://www.econedlink.org/lessons/em457/popupActivity2.htm
Do you ever have to CHOOSE between buying two different goods?
What is opportunity cost? Here is a short lesson for you to do online with your group to learn more about the costs and benefits of your choices. Follow along with the online lesson doing what you are instructed to do. Be sure to print out anything (i.e. the quiz) that you do interactively.
Vincent van Gogh's Flower Beds in Holland
www.econedlink.org/lessons/index.cfm?lesson=EM267
2. Now that you are all experts on economics…it is time for you to start the process of designing your new product:
Fill in the graphic organizer with ideas for your product - you may either print it out and write in your ideas or do it directly on the computer in Kidspiration.
Decide on your target group (who do you want to buy your product?).
Choose your top two ideas for the product from your organizer.
Finalize one idea to be your product.
Draw a simple sketch of your product.
Show the drawing to your teacher for approval.
Revise your drawing and create a final detailed (colorful) picture of your product.
3. Select your role and read the description and get started on your personal task!
Marketing Director
Finance Director
Have you ever found yourself in the school store looking for something only to find that the school doesn't even sell it? Well, now it’s up to you to design a new item to be sold in the store. Think about: What would it be? How much would it cost? Who would buy it? Is it useful for school?
In order to create your new item, you are going to need to explore the world of economics. What is economics? How does it affect me? When you make a choice to do something, do you think about the pros and cons of the action before doing it? Do you think about the effects your action(s) will have on yourself or others? Well…it’s time to find out.
The Task'
After learning about economics using the Web, it will be time for you to put your heads together, use your imaginations and produce a good or service for the consumer at the school store. What you have always wanted to buy after lunch when you have time to go to the store?
Your design team will take part in researching the basic facts about economics so that you create the best product for your school store. You must consider who your target audience is so that you can create something that will sell and create the most profit.
The Process
Before you start designing your product, you must explore the Web to find out background information about the study of economics. This will help you determine what types of products or services will be the best item for both the school and the school store.
1. Explore the following web sites on the Internet (as a group):
Welcome to Econopolis!
It is time for you to complete an interactive activity to learn about goods and services before you choose what you are going to create for the store.
At this site, you must read the description so that you know what goods and services are, and then as a group try to choose the right answers to the questions. While you are working, you will need to fill out the worksheet so you have notes to use as references when creating your good or service for the school store.
Have Fun!!!
http://library.thinkquest.org/3901/amanda/gsfarm.htm
Who are PRODUCERS?
Now, you are going to participate in an interactive activity that will teach you about producers. Who is a producer? What types of things do producers produce?
With your group, watch the following video (to get to the next page, click on the arrow at the bottom of the screen Þ)…listen carefully while following along with what the man says, then do the matching activity in order to keep going with the video.
Go learn about producers!
http://www.econedlink.org/lessons/em457/popupActivity2.htm
Do you ever have to CHOOSE between buying two different goods?
What is opportunity cost? Here is a short lesson for you to do online with your group to learn more about the costs and benefits of your choices. Follow along with the online lesson doing what you are instructed to do. Be sure to print out anything (i.e. the quiz) that you do interactively.
Vincent van Gogh's Flower Beds in Holland
www.econedlink.org/lessons/index.cfm?lesson=EM267
2. Now that you are all experts on economics…it is time for you to start the process of designing your new product:
Fill in the graphic organizer with ideas for your product - you may either print it out and write in your ideas or do it directly on the computer in Kidspiration.
Decide on your target group (who do you want to buy your product?).
Choose your top two ideas for the product from your organizer.
Finalize one idea to be your product.
Draw a simple sketch of your product.
Show the drawing to your teacher for approval.
Revise your drawing and create a final detailed (colorful) picture of your product.
3. Select your role and read the description and get started on your personal task!
Marketing Director
Finance Director
Worksheet....note: click on the table to see the original
Q.1. Calculate the average cost of the three firms in Year 2 .
Q.2. Which of the firms above has experienced falling average costs ?
Q.3. Which of the firms has experienced no change in average costs ?
Demand and supply power point
Demand and supply power point presentation
http://rapidshare.com/files/384241518/demand_and_supply.ppt.html
http://rapidshare.com/files/384241518/demand_and_supply.ppt.html
Wednesday, May 5, 2010
ECONOMIES OF SCALE AND INTEGRATION
(Answer the following questions by referring the links given below)
1. Explain the terms ‘ increasing returns to scale , decreasing returns to scale and
constant returns to scale’.
2.What is meant by economies of scale ?
3. What is meant by diseconomies of scale ?
4.Explain what is meant by ‘ the optimum size’ for a firm .
5. Explain the meaning of internal economies of scale .
6. What are the five types of internal economies of scale ?
7. What is meant by financial economies ? Give examples .
8. What is meant by marketing economies ? Give examples .
9. What is meant by technical economies ? Give examples .
10. What is meant by risk-bearing economies ? Give examples .
11. What is meant by managerial economies ?
12. Define the term ‘ external economies’ of scale .
13. What are the main types of external economies of scale available to firms in an industry ?
14. Explain the term ‘ internal diseconomies of scale’.
15. Explain the term ‘ external diseconomies of scale’.
16. Explain three reasons for a firm to grow larger .
17. What is meant by amalgamation or integration ?
18. What are the two ways in which firms amalgamate ?
19. What is meant by a ‘ take – over’ ?
20. What is a ‘holding company’?
21. What is meant by a ‘ merger’ ?
22. What are the three types of integration ?
23. What is meant by ‘ horizontal integration’ ?
24. Why do firms integrate horizontally ?
25. Define the term ‘ rationalization’.
26. What is meant by ‘ Vertical integration’ ?
27. What is meant by ‘Vertical integration backwards’ ?
28. Give a reason for vertical integration backwards .
29. What is meant by ‘Vertical integration forwards’ ?
30. Give a reason for vertical integration forwards .
31. What is meant by lateral integration ?
32. Give a reason for lateral integration .
33. What are Conglomerates ?
http://en.wikipedia.org/wiki/Horizontal_integration
http://www.tutor2u.com/
(Answer the following questions by referring the links given below)
1. Explain the terms ‘ increasing returns to scale , decreasing returns to scale and
constant returns to scale’.
2.What is meant by economies of scale ?
3. What is meant by diseconomies of scale ?
4.Explain what is meant by ‘ the optimum size’ for a firm .
5. Explain the meaning of internal economies of scale .
6. What are the five types of internal economies of scale ?
7. What is meant by financial economies ? Give examples .
8. What is meant by marketing economies ? Give examples .
9. What is meant by technical economies ? Give examples .
10. What is meant by risk-bearing economies ? Give examples .
11. What is meant by managerial economies ?
12. Define the term ‘ external economies’ of scale .
13. What are the main types of external economies of scale available to firms in an industry ?
14. Explain the term ‘ internal diseconomies of scale’.
15. Explain the term ‘ external diseconomies of scale’.
16. Explain three reasons for a firm to grow larger .
17. What is meant by amalgamation or integration ?
18. What are the two ways in which firms amalgamate ?
19. What is meant by a ‘ take – over’ ?
20. What is a ‘holding company’?
21. What is meant by a ‘ merger’ ?
22. What are the three types of integration ?
23. What is meant by ‘ horizontal integration’ ?
24. Why do firms integrate horizontally ?
25. Define the term ‘ rationalization’.
26. What is meant by ‘ Vertical integration’ ?
27. What is meant by ‘Vertical integration backwards’ ?
28. Give a reason for vertical integration backwards .
29. What is meant by ‘Vertical integration forwards’ ?
30. Give a reason for vertical integration forwards .
31. What is meant by lateral integration ?
32. Give a reason for lateral integration .
33. What are Conglomerates ?
http://en.wikipedia.org/wiki/Horizontal_integration
http://www.tutor2u.com/
Tuesday, May 4, 2010
Grade 11, economics notes
A Level Economics Grade 11
Explain the following economic terms
a) opportunity cost
b) externality
c) Pareto optimality
a) Opportunity Cost:
Every time one makes a choice, one is incurring an opportunity cost. Opportunity Cost is measured in terms of forgone alternatives. The making of a choice arises because of scarcity. Resources are scarce relative to demand and human wants are unlimited. Thus the problem of choice arises. Opportunity Cost is the real cost of a good that is sacrificed to obtain more of other goods.
In economics, we assume that both producers and consumers are rational. So they aim to achieve maximum utility in the form of profit and satisfaction respectively. Consumers prioritise their wants and the OC of choosing the first want is the second choice given up.
Eg: On a national scale, the OC of producing consumer goods is the capital goods that could have been produced using the same resources
b) Externalities:
Externalities refers to , spill over costs and benefits that accrue to parties not directly involved in the production or consumption of goods.
Externalities as the name suggests, are external: out4side the market mechanism. That is , the market can not measure or qualify them in monetary terms.
Externalities may impose costs on society These are negative externalities (External cost). The existence of external costs means that private costs do not fully represents the cost incurred by society. Externalities can arise in production or consumption. An example of the former is air or water pollution. Smoking is an external cost generated by consumers.
External benefits or positive externalities are benefits received by outside parties for economic activities of the direct parties. It means that consumers pay a price less than the total benefits received from a good. it can arise in production such as innovation of one producer helping all producers to improve their products.
c) Pareto Optimality:
Pareto Optimality refers to the efficient use of resources. Pareto optimality is attained when the nation’s resources are employed in such a way that no relocation can make one better off without making others worse off. It is at the level of out put where Marginal cost of a good exactly equals the opportunity cost the other goods sacrificed. This is where price of the good equates [1]its marginal cost (P=MC). This is called allocative efficiency.
Productive efficiency is achieved when the output is produced using the least costly combination of resources given in the technology. This is where the price is equals to average cost (P=AC)
Thus Pareto Optimality is achieved at the level of output where;
P = MC = AC = MR = AR
A Level Economics Grade 11
Positive and Normative economics
In studying economics it is useful to distinguish between Positive and Normative statements. It helps people to appreciate the scope and limitation of economics.
Positive Economics
Positive economics deal with objective or scientific explanation of the economy. These deal only with facts. it may be right or wrong, but its accuracy can be tested by appealing to the facts. ’ unemployment is rising, ‘inflation will be over 6% by next year etc are Positive statement. It is capable of refutation. It is argued by some economists that Positive models are value free.
Normative Economics
The study and presentation of policy prescription involving value judgement is called normative economics. It is usually including the word ‘ought’ or should’. They reflect people’s moral attitude. 'more aid should be given to developing countries’, ‘income should be distributed more equally’, ‘the government ought to reduce inflation’ are all normative statement. These statements are based on value judgement.
Positive Economics
Normative Economics
1. It is a statement of facts
2. It deals with objectives
3. It may right or wrong
4. It is the scientific explanation
5. Eg: Price determination,
Inflation rates
1. It is a statement of value.
2. It contains value judgement
3. It tells what is ‘good ‘or ‘ssbad’
4. It can not be proved
5. Eg: Government ought to reduce inflation, Tax the rich more than the poor.
Specialisation and Division of Labour
Specialisation
Specialisation is the production of limited range of goods by an individual or firm or country in co- operation with others. So that together a complete range of good is produced. It is the technique of breaking down the production into large number of specialised tasks. Specialisation can occur between nations or within the economies.
Division of Labour: Specialisation by individual is called Division of labour.
Stages of division of labour
i) Specialisation by craft: Even under the most primitive conditions of human existence there as some division of labour. Later in village communities , some occupations required specialisation as millers, carpenters, smiths, barbers etc
ii) Specialisation by process: The second stage of division of labour tends to be associated with the Industrial Revolution. The development of the factory system led to a great extension of the principle of the division of labour.
iii) Regional Specialisation: A further extension of division of labour occurs when industries are located in particular areas.
iv) International division of labour: The final stage in the division of labour occurs when countries specialise in the production of those commodities for which they have the greatest comparative advantage over them.
Advantages
a) Greater skill of workers: Division of labour results in workers acquiring greater skill at their job. The constant repetition of a task makes its performance almost automatic. In other words, “Practice makes perfect”.
b) A saving of time: There is a saving of time in division of labour. By keeping to a single operation , a workman can accomplish a great deal more, since he wastes less time between operations.
c) Employment of Specialists: Specialisation makes possible for each workman to specialise in the work for which he has the greatest aptitude.
d) It makes possible the use machinery: It may be put forward as a further advantage of the division of labour that it made possible a greater use of machinery. Division of labour paved the way for the introduction of machinery and mass productive methods.
e) Less Fatigue: It is sometimes claimed that the workers habituated to the repetition of simple task becomes less fatigued by his work.
Disadvantages
a) Monotony of the worker: Specialisation process means that each workman performs only one small operation. He has to do it a great many times during each working day. His work ,there for e ,becomes very monotonous and tend to dull the intelligence.
b) Great risk of unemployment: Division of labour increases the complexity of the production So it may lead to a great deal of unemployment in the society.
c) Problem of break down: Another problem with specialisation is that a break down in part of production can cause chaos with in the system
d) Dependents upon one another: It is another problem related with the specialisation. Every workman is depending upon each other. Since it is interdependent ,each person has to wait others for their work.
Economic Systems
Free Market Economy
All societies are faced with the problem of scarcity. One important difference between societies is in the degree of government control of the economy.
A Free Market economy is an economy where all economic decisions are taken by individual household and firm and with less government intervention.
In a Free Market economy there is no government intervention at all. All decisions are taken by individuals and firms. Household decide how much labour and other factors to supply and what goods to consume. Firms decide what goods to produce and what factor to employ.
Market economy is also known as Laissez faire or Free enterprises Economy or Capitalist Economy. It is allowing people to-do as they please without governmental regulations and control. Emphasis is laid on the freedom of the individual.
Main Features
1. Main actors: The four main actors with in the system are consumers, producers, owners of private property (Land and Capital) and government.
2. Private ownership: Most of all factors of production with in the economy is owned by private individuals and organisations.
3. Free decision making by the individual: Free Market economy is usually associated with a pure capitalist system. Here land and capital are privately owned. All economic decisions are taken by households and firms under the following assumptions:
a. Firms seek maximise profits
b. Consumers aim to maximise their individual welfare.
c. Workers seek to maximise their wages.
d. Government seeks to maximise social welfare.
4. Competition: By competitive market ,we mean :
· there is large numbers of buyers and sellers
· there is a perfect knowledge about market conditions
· freedom of entry and exit
Buyers and sellers compete against one another and among themselves for each commodity. No one is able to influence price by his own action.
5. Price Mechanism: In a Free market economy, the government or central authority does not decide what goods to produce, how they are to be produced. Production and distribution are governed by the price or market mechanism.
The price mechanism works through the interaction of prices, that is:
· the prices of goods and services
· the prices of factors of production
· the profit motive of the production
The interaction of demand and supply determine the price of the good. Changes in demand and supply relatively lead to changes in market prices.
S D
Price
P
D S
O Q
Quantity
The producers will produce at quantity where the demand cuts the supply curve at OQ as in
the figure above.
6. Profit motive: Making maximum profit is one of the main features of the free market economy.
7. Limited role of the government: In Free market economy the role of the government is limited. The government is responsible for the issue of money and for the maintenance of its value.
Advantages
a) The free market responds quickly to peoples want: In the free market system if people want a good or service and can afford to by it, then it becomes profitable to make it.
b) The market produces a wide variety of goods and services to meet consumers want.
c) The market system encourages the use of new and better methods and machines to produce gods and services: The aim of a firm in the market economy is to make as much profit as possible. New methods and machines reduce the cost of producing gods and services.
d) Quality and innovation: One advantage claimed a free market economy is that there are strong incentives built in the system to innovate and produce high quality goods. Companies which fail to do both are likely to be out of business by more efficient firms
e) Economic growth: In a free market economy, there may be considerable dynamism. However, some free market economies have grown at a considerably faster rate than other economies.
Disadvantages
a) Factors of production will be employed only if it is profitable to do so: If a profitable use can not be found for some of the scarce resources then they will be unemployed.
b) The free market economy fail to produce certain goods and services: For example everyone enjoys the benefit of street lighting at night but no private firm could provide this. Government may therefore to provide such goods and services for the general public.
c) The free market economy encourage the consumption of harmful gods: Some people may wish to buy dangerous drugs and if they can afford to buy that, then the free market will find it profitable to provide these goods.
d) The social effects of production may be ignored: Factories bellowing smoke into the air can affect us all. Also the noise from factories, airport and roads affect people who live nearby. Private firms may not consider the social effects of these actions.
e) Ethical objection: Finally, there is ethical objection, that a free market economy by rewarding self interested behaviour may encourage selfishness, greed, materialism, and the acquisition of powers.
Role of government in a Free Market economy
Ø Some goods like public goods will not be produced by the market mechanism. Therefore the government has to provide these god s and raise taxes to pay for them.
Ø The government is responsible for the issue of money and the maintenance of its value.
Ø The government needs to ensure an adequate ‘legal frame wok for the allocation and enforcement of properly rights.
Ø Government needs to have power to break up monopolies, prevent practices which restrict free trade and control the activities of trade union.
The role government is vital in a market economy. Without government, there would be anarchy. But government regulation should be the minimum necessary to secure the orderly working of the market economy.
COMMAND ECONOMY
Command economy is an economic system in which resources are allocated by government through a central planning process. All the decisions are taken by the government. Command economy is otherwise known as planned economy or socialist economy.
Characteristics
Main actors : government or planners
Consumers
Workers
welfare Motive
Public ownership
Centralised planning
A planned economy is characterised as one where everything is controlled by the government and there is no private sector. There is no consumer sovereignty .It means consumers have no choice but to accept the choices made by the government the people’s standard of living is lower due to the lack of choice. There may be over production of certain goods.
In a centrally planned economy there is no private motive. If there is a profit motive the producers will produce at the most efficient method so as to increase their profit. The producers just produce at a quantity that is instructed by the planners. Loss will be underwritten by the state.
Mixed economy
A mixed economy is a mixture of a planned economy and a free market enterprise. Mixed economies are economies where the balance between allocation by market mechanism and allocation by planning process is much more equal.
In practice no pure planned econo0mies or free market enterprises economies exist in the world.
Characteristics
A mixed economy possesses a number of characteristics.
· a) The main actors: The four main types of actors with in the system are consumers, producers, factor owners, and government.
· b) Motivation: In the private sector of the economy, consumers, producers, factor owners are assumed to be motivated by pure self interest. The public sector is motivated by welfare of the society.
· c) Ownership: The factors of production are partly owned by private individuals and organisation. At the same time state also owns a significant proportion.
· d) Competition: In the private sector of the economy there is competition. In the state sector, however, resources will be allocated through the planning. This means that consumers are offered choice of goods and services with in the private sector of the economy but little or no choice with in the public sector.
· e) Government: Government has a number of important functions in a mixed economy.
Regulate economic activities of the private sector
to provide public goods and merit goods (education ,health etc)
owners of key sectors ( postal, railways, electricity etc)
Why there are mixed Economies
Mixed economy is an economic system which combines both the features of market economy and command economy. At present this system is being adopted by many nations in the world.
a) Economic Stability: A market economy suffers from economic stability. But in mixed economy because of state regulation and planning of the economy, there is no economic instability.
b) Rapid economic growth: In a mixed economy the rate of economic growth will be more as compared to market or command economy. In mixed economy the growth rate is more as both private and public sectors produce more goods with competitive spirit.
c) Preservation of freedom: A mixed economy 6i based on democratic principles. It promotes economic, political, civil and cultural freedom of the people. There is also freedom of occupation, pres and speech which are not found in a completely command economy or completely market3 economy.
d) Consumer’s sovereignty: Consumers sovereignty is not found in command economy. But in a mixed economy the commodities will be produced according to the taste of the consumers. Consumers will feel more happy as they purchase goods which they like.
e) Profit and welfare: Private sector is guided by profit motive where as public sector is guided by service motive. Some industries will be under the joint ownership of private individuals and government. Government will control and supervise the private sector by way of price policy, tax policy, etc. In mixed economy everything will be directed by the planning commission to innovate, and there is no reward for hard work. Due to lack of competition, economic growth is low. But in a market economy the economic growth is very high but there is social costs such as pollution damage to environment, crime etc. But in a mixed economy social costs are controlled by the government and there will be steady economic growth.
From this discussion it is concluded that mixed economy might preferred to a market or a command economy.
Explain the following economic terms
a) opportunity cost
b) externality
c) Pareto optimality
a) Opportunity Cost:
Every time one makes a choice, one is incurring an opportunity cost. Opportunity Cost is measured in terms of forgone alternatives. The making of a choice arises because of scarcity. Resources are scarce relative to demand and human wants are unlimited. Thus the problem of choice arises. Opportunity Cost is the real cost of a good that is sacrificed to obtain more of other goods.
In economics, we assume that both producers and consumers are rational. So they aim to achieve maximum utility in the form of profit and satisfaction respectively. Consumers prioritise their wants and the OC of choosing the first want is the second choice given up.
Eg: On a national scale, the OC of producing consumer goods is the capital goods that could have been produced using the same resources
b) Externalities:
Externalities refers to , spill over costs and benefits that accrue to parties not directly involved in the production or consumption of goods.
Externalities as the name suggests, are external: out4side the market mechanism. That is , the market can not measure or qualify them in monetary terms.
Externalities may impose costs on society These are negative externalities (External cost). The existence of external costs means that private costs do not fully represents the cost incurred by society. Externalities can arise in production or consumption. An example of the former is air or water pollution. Smoking is an external cost generated by consumers.
External benefits or positive externalities are benefits received by outside parties for economic activities of the direct parties. It means that consumers pay a price less than the total benefits received from a good. it can arise in production such as innovation of one producer helping all producers to improve their products.
c) Pareto Optimality:
Pareto Optimality refers to the efficient use of resources. Pareto optimality is attained when the nation’s resources are employed in such a way that no relocation can make one better off without making others worse off. It is at the level of out put where Marginal cost of a good exactly equals the opportunity cost the other goods sacrificed. This is where price of the good equates [1]its marginal cost (P=MC). This is called allocative efficiency.
Productive efficiency is achieved when the output is produced using the least costly combination of resources given in the technology. This is where the price is equals to average cost (P=AC)
Thus Pareto Optimality is achieved at the level of output where;
P = MC = AC = MR = AR
A Level Economics Grade 11
Positive and Normative economics
In studying economics it is useful to distinguish between Positive and Normative statements. It helps people to appreciate the scope and limitation of economics.
Positive Economics
Positive economics deal with objective or scientific explanation of the economy. These deal only with facts. it may be right or wrong, but its accuracy can be tested by appealing to the facts. ’ unemployment is rising, ‘inflation will be over 6% by next year etc are Positive statement. It is capable of refutation. It is argued by some economists that Positive models are value free.
Normative Economics
The study and presentation of policy prescription involving value judgement is called normative economics. It is usually including the word ‘ought’ or should’. They reflect people’s moral attitude. 'more aid should be given to developing countries’, ‘income should be distributed more equally’, ‘the government ought to reduce inflation’ are all normative statement. These statements are based on value judgement.
Positive Economics
Normative Economics
1. It is a statement of facts
2. It deals with objectives
3. It may right or wrong
4. It is the scientific explanation
5. Eg: Price determination,
Inflation rates
1. It is a statement of value.
2. It contains value judgement
3. It tells what is ‘good ‘or ‘ssbad’
4. It can not be proved
5. Eg: Government ought to reduce inflation, Tax the rich more than the poor.
Specialisation and Division of Labour
Specialisation
Specialisation is the production of limited range of goods by an individual or firm or country in co- operation with others. So that together a complete range of good is produced. It is the technique of breaking down the production into large number of specialised tasks. Specialisation can occur between nations or within the economies.
Division of Labour: Specialisation by individual is called Division of labour.
Stages of division of labour
i) Specialisation by craft: Even under the most primitive conditions of human existence there as some division of labour. Later in village communities , some occupations required specialisation as millers, carpenters, smiths, barbers etc
ii) Specialisation by process: The second stage of division of labour tends to be associated with the Industrial Revolution. The development of the factory system led to a great extension of the principle of the division of labour.
iii) Regional Specialisation: A further extension of division of labour occurs when industries are located in particular areas.
iv) International division of labour: The final stage in the division of labour occurs when countries specialise in the production of those commodities for which they have the greatest comparative advantage over them.
Advantages
a) Greater skill of workers: Division of labour results in workers acquiring greater skill at their job. The constant repetition of a task makes its performance almost automatic. In other words, “Practice makes perfect”.
b) A saving of time: There is a saving of time in division of labour. By keeping to a single operation , a workman can accomplish a great deal more, since he wastes less time between operations.
c) Employment of Specialists: Specialisation makes possible for each workman to specialise in the work for which he has the greatest aptitude.
d) It makes possible the use machinery: It may be put forward as a further advantage of the division of labour that it made possible a greater use of machinery. Division of labour paved the way for the introduction of machinery and mass productive methods.
e) Less Fatigue: It is sometimes claimed that the workers habituated to the repetition of simple task becomes less fatigued by his work.
Disadvantages
a) Monotony of the worker: Specialisation process means that each workman performs only one small operation. He has to do it a great many times during each working day. His work ,there for e ,becomes very monotonous and tend to dull the intelligence.
b) Great risk of unemployment: Division of labour increases the complexity of the production So it may lead to a great deal of unemployment in the society.
c) Problem of break down: Another problem with specialisation is that a break down in part of production can cause chaos with in the system
d) Dependents upon one another: It is another problem related with the specialisation. Every workman is depending upon each other. Since it is interdependent ,each person has to wait others for their work.
Economic Systems
Free Market Economy
All societies are faced with the problem of scarcity. One important difference between societies is in the degree of government control of the economy.
A Free Market economy is an economy where all economic decisions are taken by individual household and firm and with less government intervention.
In a Free Market economy there is no government intervention at all. All decisions are taken by individuals and firms. Household decide how much labour and other factors to supply and what goods to consume. Firms decide what goods to produce and what factor to employ.
Market economy is also known as Laissez faire or Free enterprises Economy or Capitalist Economy. It is allowing people to-do as they please without governmental regulations and control. Emphasis is laid on the freedom of the individual.
Main Features
1. Main actors: The four main actors with in the system are consumers, producers, owners of private property (Land and Capital) and government.
2. Private ownership: Most of all factors of production with in the economy is owned by private individuals and organisations.
3. Free decision making by the individual: Free Market economy is usually associated with a pure capitalist system. Here land and capital are privately owned. All economic decisions are taken by households and firms under the following assumptions:
a. Firms seek maximise profits
b. Consumers aim to maximise their individual welfare.
c. Workers seek to maximise their wages.
d. Government seeks to maximise social welfare.
4. Competition: By competitive market ,we mean :
· there is large numbers of buyers and sellers
· there is a perfect knowledge about market conditions
· freedom of entry and exit
Buyers and sellers compete against one another and among themselves for each commodity. No one is able to influence price by his own action.
5. Price Mechanism: In a Free market economy, the government or central authority does not decide what goods to produce, how they are to be produced. Production and distribution are governed by the price or market mechanism.
The price mechanism works through the interaction of prices, that is:
· the prices of goods and services
· the prices of factors of production
· the profit motive of the production
The interaction of demand and supply determine the price of the good. Changes in demand and supply relatively lead to changes in market prices.
S D
Price
P
D S
O Q
Quantity
The producers will produce at quantity where the demand cuts the supply curve at OQ as in
the figure above.
6. Profit motive: Making maximum profit is one of the main features of the free market economy.
7. Limited role of the government: In Free market economy the role of the government is limited. The government is responsible for the issue of money and for the maintenance of its value.
Advantages
a) The free market responds quickly to peoples want: In the free market system if people want a good or service and can afford to by it, then it becomes profitable to make it.
b) The market produces a wide variety of goods and services to meet consumers want.
c) The market system encourages the use of new and better methods and machines to produce gods and services: The aim of a firm in the market economy is to make as much profit as possible. New methods and machines reduce the cost of producing gods and services.
d) Quality and innovation: One advantage claimed a free market economy is that there are strong incentives built in the system to innovate and produce high quality goods. Companies which fail to do both are likely to be out of business by more efficient firms
e) Economic growth: In a free market economy, there may be considerable dynamism. However, some free market economies have grown at a considerably faster rate than other economies.
Disadvantages
a) Factors of production will be employed only if it is profitable to do so: If a profitable use can not be found for some of the scarce resources then they will be unemployed.
b) The free market economy fail to produce certain goods and services: For example everyone enjoys the benefit of street lighting at night but no private firm could provide this. Government may therefore to provide such goods and services for the general public.
c) The free market economy encourage the consumption of harmful gods: Some people may wish to buy dangerous drugs and if they can afford to buy that, then the free market will find it profitable to provide these goods.
d) The social effects of production may be ignored: Factories bellowing smoke into the air can affect us all. Also the noise from factories, airport and roads affect people who live nearby. Private firms may not consider the social effects of these actions.
e) Ethical objection: Finally, there is ethical objection, that a free market economy by rewarding self interested behaviour may encourage selfishness, greed, materialism, and the acquisition of powers.
Role of government in a Free Market economy
Ø Some goods like public goods will not be produced by the market mechanism. Therefore the government has to provide these god s and raise taxes to pay for them.
Ø The government is responsible for the issue of money and the maintenance of its value.
Ø The government needs to ensure an adequate ‘legal frame wok for the allocation and enforcement of properly rights.
Ø Government needs to have power to break up monopolies, prevent practices which restrict free trade and control the activities of trade union.
The role government is vital in a market economy. Without government, there would be anarchy. But government regulation should be the minimum necessary to secure the orderly working of the market economy.
COMMAND ECONOMY
Command economy is an economic system in which resources are allocated by government through a central planning process. All the decisions are taken by the government. Command economy is otherwise known as planned economy or socialist economy.
Characteristics
Main actors : government or planners
Consumers
Workers
welfare Motive
Public ownership
Centralised planning
A planned economy is characterised as one where everything is controlled by the government and there is no private sector. There is no consumer sovereignty .It means consumers have no choice but to accept the choices made by the government the people’s standard of living is lower due to the lack of choice. There may be over production of certain goods.
In a centrally planned economy there is no private motive. If there is a profit motive the producers will produce at the most efficient method so as to increase their profit. The producers just produce at a quantity that is instructed by the planners. Loss will be underwritten by the state.
Mixed economy
A mixed economy is a mixture of a planned economy and a free market enterprise. Mixed economies are economies where the balance between allocation by market mechanism and allocation by planning process is much more equal.
In practice no pure planned econo0mies or free market enterprises economies exist in the world.
Characteristics
A mixed economy possesses a number of characteristics.
· a) The main actors: The four main types of actors with in the system are consumers, producers, factor owners, and government.
· b) Motivation: In the private sector of the economy, consumers, producers, factor owners are assumed to be motivated by pure self interest. The public sector is motivated by welfare of the society.
· c) Ownership: The factors of production are partly owned by private individuals and organisation. At the same time state also owns a significant proportion.
· d) Competition: In the private sector of the economy there is competition. In the state sector, however, resources will be allocated through the planning. This means that consumers are offered choice of goods and services with in the private sector of the economy but little or no choice with in the public sector.
· e) Government: Government has a number of important functions in a mixed economy.
Regulate economic activities of the private sector
to provide public goods and merit goods (education ,health etc)
owners of key sectors ( postal, railways, electricity etc)
Why there are mixed Economies
Mixed economy is an economic system which combines both the features of market economy and command economy. At present this system is being adopted by many nations in the world.
a) Economic Stability: A market economy suffers from economic stability. But in mixed economy because of state regulation and planning of the economy, there is no economic instability.
b) Rapid economic growth: In a mixed economy the rate of economic growth will be more as compared to market or command economy. In mixed economy the growth rate is more as both private and public sectors produce more goods with competitive spirit.
c) Preservation of freedom: A mixed economy 6i based on democratic principles. It promotes economic, political, civil and cultural freedom of the people. There is also freedom of occupation, pres and speech which are not found in a completely command economy or completely market3 economy.
d) Consumer’s sovereignty: Consumers sovereignty is not found in command economy. But in a mixed economy the commodities will be produced according to the taste of the consumers. Consumers will feel more happy as they purchase goods which they like.
e) Profit and welfare: Private sector is guided by profit motive where as public sector is guided by service motive. Some industries will be under the joint ownership of private individuals and government. Government will control and supervise the private sector by way of price policy, tax policy, etc. In mixed economy everything will be directed by the planning commission to innovate, and there is no reward for hard work. Due to lack of competition, economic growth is low. But in a market economy the economic growth is very high but there is social costs such as pollution damage to environment, crime etc. But in a mixed economy social costs are controlled by the government and there will be steady economic growth.
From this discussion it is concluded that mixed economy might preferred to a market or a command economy.
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Monday, May 3, 2010
What Happens to Average Costs in the Long Run ?
In the following example , calculate what has happened to the average cost of producing boxes of chocolates in each company as they moved from year 1 to year 2 .
The ACE Company
The BOOM Company
The Crickey Company
Year 1
Total cost of all inputs
£10000
Total product 10000
Average Cost £1
Year 1
Total cost of all inputs
£12000
Total product 12000
Average cost £1
Year 1
Total cost of all inputs
£9000
Total product 9000
Average cost £1
Year 2
Total cost of all inputs
£20000
Total product 25000
Average cost ?
Year 2
Total cost of all inputs
£24000
Total product 20000
Average cost ?
Year 2
Total cost of all inputs
£18000
Total product 18000
Average cost ?
Q.2. Which of the firms above has experienced falling average costs ?
Q.3. Which of the firms has experienced no change in average costs ?
The example shows that a firm’s average cost can increase , decrease or remain constant as it increases its scale of production in the long run .
In the following example , calculate what has happened to the average cost of producing boxes of chocolates in each company as they moved from year 1 to year 2 .
The ACE Company
The BOOM Company
The Crickey Company
Year 1
Total cost of all inputs
£10000
Total product 10000
Average Cost £1
Year 1
Total cost of all inputs
£12000
Total product 12000
Average cost £1
Year 1
Total cost of all inputs
£9000
Total product 9000
Average cost £1
Year 2
Total cost of all inputs
£20000
Total product 25000
Average cost ?
Year 2
Total cost of all inputs
£24000
Total product 20000
Average cost ?
Year 2
Total cost of all inputs
£18000
Total product 18000
Average cost ?
Q.2. Which of the firms above has experienced falling average costs ?
Q.3. Which of the firms has experienced no change in average costs ?
The example shows that a firm’s average cost can increase , decrease or remain constant as it increases its scale of production in the long run .
Grade 8 Economics- Chapter-1, Basic economic problem
Chapter: 1
The Basic Economic Problem
Scarcity:
Scarcity means that economic resources are not enough to completely satisfy our wants. Scarcity arises because human wants are unlimited and economic resources are scarce.
Resources:
All the scarce materials found on the earth are called resources. These include natural resources, machinery, people and so on.
Why are resources important?
Resources are important because they are used to make goods and services to satisfy human wants.
Unlimited wants.
Human wants are unlimited. They are always growing and changing. When we satisfy one want another one will come up.
.
Goods:
These are things that satisfy our wants. Goods are made with scarce resources.
Services:
Part of a nation’s resources is used to produce services that people want to consume as well as goods. E.g. Education, health, transport, communication, hotel, catering, tourism, entertainment etc.
Needs and wants:
Wants are goods and services that are not necessary for our survival, they give us pleasure. Example TV, motorcars, telephone etc.
Needs are the goods and services that are necessary for our survival.
Example: Food, clothing, house, medicine etc.
Free goods:
Free goods are goods that are unlimited in supply. They are not scarce goods. They have no opportunity cost. Example: ice at the North Pole, sand in a desert, air.
Economic goods:
Economic goods are scarce goods. These are the goods and services that are produced by using the scarce economic resources.
Wealth and income
The real wealth of a nation consists of its capital like roads, railways, houses, factories, machines and other stock of capital goods available to use or consume in the future.
The real income of a nation consists of goods and services produced by its resources over a given periods of time.
Thus, wealth is essentially a stock of goods that has been accumulated , where as income is a flow of both goods and services measured over time.
Choice:
People cannot find enough resources to satisfy all their wants and needs, so they must choose the most urgent wants and satisfy them first. This is called choice.
Choice involves an opportunity cost.
Why is choice necessary?
Choice is necessary because resources have alternative uses.
EXERCISE : I
Scarce Resources have Alternative uses:
Below is a list of resources. See how many alternative uses you can find for them, that is, see how many different goods and services they can help to produce.
1. An area of farmland.
2. A person who is good at Mathematics.
3. A shovel.
4. An egg.
Opportunity cost: The cost of choice
Human wants are unlimited and economic resources are scarce. Therefore we have to make choice. When we make a choice something has to be given up or sacrificed. The thing that we give up is the opportunity cost of what we have chosen.
Example: Ahmed has just enough money to buy either a coca cola or an ice cream. He chooses the ice cream. His opportunity cost is the coca cola that he gave up.
Opportunity cost arises not only when we buy things, but also when we choose what goods and services we produce.
For example, in deciding to use a piece of land to build a new sports complex, we may be going without the benefit new houses.
EXERCISE: 2
The Next Best Thing
Choosing between goods and services involves a very special cost . Now imagine that you were unable to get any of these items. Copy and complete the table.
What have I just bought
What could I have bought instead?
Compact disc.
Four bed room house
Box of chocolates.
A ticket to the cup final
In the second column you have listed your second best choices, or your next best alternatives. For example, if you had bought the compact disc player, you may be going without the benefit of a record -player. The benefit of the record player given up is the real cost of owing the compact disc player .The real cost of choosing one thing and not another is known as the opportunity cost. This measures the benefit you could have had from the next best alternative you have gone without.
1.3 Implications of particular courses of action in terms of opportunity cost.
Opportunity cost arises not only when we buy things, but also when we choose what goods and services to produce. For example, in deciding to use a piece of land to build a new sports complex, we may be going without the benefit of new houses.
EXERCISE : 3
If there were enough resources to produce everything everybody wanted, would there be any opportunity cost? Explain your answer.
1.4 Production, consumption and exchange
All the economic activities can be classified into three groups. They are production, consumption and exchange:
Production:
Production means producing goods and services to satisfy human wants.
Producer: The people who make and sale goods and services are known as producers.
Consumption:
This describes the using up of goods and services in order to satisfy our wants.
Consumer:
A person who uses up goods and services
Consumer goods:
Goods, which are wanted for their own sake because they provide immediate satisfaction.
Example: food, clothing, a household’s furniture, a family car etc.
Durable consumer goods:
These are the consumer goods that have a fairly long life. Many of them last for several years.
Example: TV, table, chair.
Non-durable consumer goods:
These are the commodities, which are used up immediately or in a short period of time. Some of these are single use goods. Example: food, soap, toothpaste etc.
Consumer services:
These include the services that we use in modern life.
Example: transport, entertainment communication, legal, education, and health services, etc.
Exchange:
Exchange is the act of buying and selling goods and services either in the form of barter or through a market.
The modern system of exchange depends upon the use of money. We sell our goods and services for money and then use this money to buy the goods and services that others have produced.
Revision questions:
1. What is the basic economic problem common to all societies?
A. The allocation of scarce resources.
B. The elimination of inflation.
C. The need to achieve full employment.
D. The need to reduce taxation.
2. How can economics be defined?
A. Economics is a study of limited resources only.
B. Economics is a science that studies limited wants only.
C. Economics is a social science which studies human behavior as a
relationship between ends and scarce means which have alternative uses .
D. Economics is a study of limited wants and unlimited resources.
3. Which one of the following is true?
A. Wants are limited and resources are unlimited.
B. Wants are unlimited and resources are limited.
C. Wants are limited and resources are limited.
D. Wants are unlimited and resources are unlimited.
4. Which one of the following is an example of free goods?
A. Free food offered to poor people. B. Free traveling.
C. Free meal in a restaurant. D. air
5. What is the term used to describe a situation whereby a student is unable to buy a school bag because he has bought an account textbook?
A. Wants.
B. Opportunity cost.
C. Social cost.
D. Resources.
6. How can the term “opportunity cost” be defined?
A. The next best opportunity to buy a product.
B. The next best alternative forgone.
C. The next best alternative forgone.
D. The next best opportunity to sell a product.
7. What is the main objective of production?
A. To satisfy human wants.
B. To help management.
C. To help the government in controlling the economy.
D. To provide free goods.
8. A carpenter works five 9-hour days each week and produces wooden bowls at a rate of 2 per hour. What is the opportunity cost of taking a holiday on a working day?
A. $5
B. $10
C. 2 bowls
D. 18 bowls
9. The need to make choice arises because
A. wants are limited
B. resources are limited
C. resources to satisfy our wants are scarce
D. goods and services are unlimited
10. The basic economic problems of any economy are
A. what to produce
B. what and how to produce
C. for whom to produce
D. what, how and fro whom to produce
11. Resources are also known as
A. consumer goods
B. public goods
C. wants
D. factors of production
12. Which of the following choices would be classed as part of the basic economic problem?
A. To have public rather than private ownership of industry.
B. To use direct taxes rather than indirect taxes
C. To use fiscal rather than monetary policy
D. To use land for industry rather than agriculture.
13. A student leaves school and decides to spend the next two years at a college improving her qualifications. What is the opportunity cost for improving her qualifications for the next two years?
A. The extra money she will earn as a result of her improved qualifications
B. The money she would have earned if she had been in work for the two years.
C. The increase in job opportunities she will have as a result of her extra qualifications.
D. The lost production due to her not being in work.
E. The cost of the course fees at the college.
14. An artist works five 8-hour days each week and produces greeting cards at the rate of 150 per hour. She sells the cards for 110 cents each. What is the opportunity cost of taking a holiday on a working day?
A.10 cents B. 150 cents C. 150 cards
D. 1200 cards E. 6000 cards.
15. Which of the following describes the opportunity cost to society of building a new school?
A. The money spend on building the school
B. The increase in taxation to pay for the school
C. The extra cost of producing equipment and teachers to run the school efficiently.
D. The goods and services that could have been produced instead of the school.
16. Commercial companies are cutting tropical rain forests for hardwood timber. What is the opportunity cost to society of this activity?
A. The revenue from the sale of the timber
B. The natural habitat that is lost.
C. The products made from the timber
D. The value of the land cleared of timber
E. The profits of the companies
17. A housewife knits 5 baby garments a day. What is the opportunity cost if she stops knitting for two days and bakes bread instead?
A. Ten garments
B. The cost of the flour for the bread.
C. The cost of the wool she would have used.
D. The value of the bread produced.
18. Which combination of features describes the basic economic problem?
Factors of production Wants
A. Limited Limited
B. Limited Unlimited
C. Unlimited Limited
D. Unlimited Unlimited
19. A person makes sandwiches at home for five hours each day. She makes 20 sandwiches per hour, which she sells for $2 each. What is the opportunity cost if she takes a holiday on a working day?
A. $2 B. $40 C. 20 sandwiches D. 100 sandwiches
20. When economist says that something is scare; what does it mean to them?
A) Some thing is rare
B) Something is available very small quantity
C) Something is available enough quantity
D) Not enough quantity available to satisfy everyone’s wants
21. Which of the following can be considered as free goods but not as economic goods?
A) ice B) sand C) air D) sunshine
22. Which of the following is correct about free goods?
A) They can be obtained without sacrificing something
B) Sacrificing is must to obtain these goods
C) They have less cost of production
D) The production of these goods uses up scarce resources
23. We make choice because we have:
A) Unlimited wants and limited resources
B) Limited resources and limited wants
C) Unlimited wants and unlimited resources
D) Unlimited resources and limited wants
24. The principal of your school awarded you a cap for your outstanding performance in G.C.E ‘O’ level examination. Here the ‘cap’ is not considered as free good because.
A) It is freely available to you
B) It does not have opportunity cost
C) Zero price does not mean zero cost
D) It is not limited in supply
25. Scarcity is a feature of:
A) poor society only
B) rich society only
C) all societies
D) developed society
26. Which of the following goods does not require resources to produce them?
A) Economic goods
B) Free goods
C) Merit goods
D) Social goods
27. The total quantity of goods and services produced in any country is:
A) determined by the labour force
B) sufficient to satisfy people’s need
C) unlimited in supply
D) less than what people want
28. Economic problem arises because:
A) wants are unlimited
B) resources are scarce
C) scarce resources have limited uses
D) a particular want is satiable
29. Charles wants to buy either a pen or an apple with all his pocket money. He does not like either a chocolate or an orange .If he decides to buy a pen, and then the opportunity cost of it is:
A) an orange
B) an apple
C) a chocolate
D) none of the above
EXERCISE -1
1. Define the economic problem?
2. What is scarcity?
3. Explain opportunity cost?
4. What are the durable consumer goods?
4. What are the non-durable consumer goods?
5. Write the difference between needs and wants?
6. What are economic goods?
7. What is utility?
8. Distinguish between free goods and economic goods?
9. What do you mean by an exchange?
10. Who is a consumer?
Cross Word Puzzle:
****
The Basic Economic Problem
Scarcity:
Scarcity means that economic resources are not enough to completely satisfy our wants. Scarcity arises because human wants are unlimited and economic resources are scarce.
Resources:
All the scarce materials found on the earth are called resources. These include natural resources, machinery, people and so on.
Why are resources important?
Resources are important because they are used to make goods and services to satisfy human wants.
Unlimited wants.
Human wants are unlimited. They are always growing and changing. When we satisfy one want another one will come up.
.
Goods:
These are things that satisfy our wants. Goods are made with scarce resources.
Services:
Part of a nation’s resources is used to produce services that people want to consume as well as goods. E.g. Education, health, transport, communication, hotel, catering, tourism, entertainment etc.
Needs and wants:
Wants are goods and services that are not necessary for our survival, they give us pleasure. Example TV, motorcars, telephone etc.
Needs are the goods and services that are necessary for our survival.
Example: Food, clothing, house, medicine etc.
Free goods:
Free goods are goods that are unlimited in supply. They are not scarce goods. They have no opportunity cost. Example: ice at the North Pole, sand in a desert, air.
Economic goods:
Economic goods are scarce goods. These are the goods and services that are produced by using the scarce economic resources.
Wealth and income
The real wealth of a nation consists of its capital like roads, railways, houses, factories, machines and other stock of capital goods available to use or consume in the future.
The real income of a nation consists of goods and services produced by its resources over a given periods of time.
Thus, wealth is essentially a stock of goods that has been accumulated , where as income is a flow of both goods and services measured over time.
Choice:
People cannot find enough resources to satisfy all their wants and needs, so they must choose the most urgent wants and satisfy them first. This is called choice.
Choice involves an opportunity cost.
Why is choice necessary?
Choice is necessary because resources have alternative uses.
EXERCISE : I
Scarce Resources have Alternative uses:
Below is a list of resources. See how many alternative uses you can find for them, that is, see how many different goods and services they can help to produce.
1. An area of farmland.
2. A person who is good at Mathematics.
3. A shovel.
4. An egg.
Opportunity cost: The cost of choice
Human wants are unlimited and economic resources are scarce. Therefore we have to make choice. When we make a choice something has to be given up or sacrificed. The thing that we give up is the opportunity cost of what we have chosen.
Example: Ahmed has just enough money to buy either a coca cola or an ice cream. He chooses the ice cream. His opportunity cost is the coca cola that he gave up.
Opportunity cost arises not only when we buy things, but also when we choose what goods and services we produce.
For example, in deciding to use a piece of land to build a new sports complex, we may be going without the benefit new houses.
EXERCISE: 2
The Next Best Thing
Choosing between goods and services involves a very special cost . Now imagine that you were unable to get any of these items. Copy and complete the table.
What have I just bought
What could I have bought instead?
Compact disc.
Four bed room house
Box of chocolates.
A ticket to the cup final
In the second column you have listed your second best choices, or your next best alternatives. For example, if you had bought the compact disc player, you may be going without the benefit of a record -player. The benefit of the record player given up is the real cost of owing the compact disc player .The real cost of choosing one thing and not another is known as the opportunity cost. This measures the benefit you could have had from the next best alternative you have gone without.
1.3 Implications of particular courses of action in terms of opportunity cost.
Opportunity cost arises not only when we buy things, but also when we choose what goods and services to produce. For example, in deciding to use a piece of land to build a new sports complex, we may be going without the benefit of new houses.
EXERCISE : 3
If there were enough resources to produce everything everybody wanted, would there be any opportunity cost? Explain your answer.
1.4 Production, consumption and exchange
All the economic activities can be classified into three groups. They are production, consumption and exchange:
Production:
Production means producing goods and services to satisfy human wants.
Producer: The people who make and sale goods and services are known as producers.
Consumption:
This describes the using up of goods and services in order to satisfy our wants.
Consumer:
A person who uses up goods and services
Consumer goods:
Goods, which are wanted for their own sake because they provide immediate satisfaction.
Example: food, clothing, a household’s furniture, a family car etc.
Durable consumer goods:
These are the consumer goods that have a fairly long life. Many of them last for several years.
Example: TV, table, chair.
Non-durable consumer goods:
These are the commodities, which are used up immediately or in a short period of time. Some of these are single use goods. Example: food, soap, toothpaste etc.
Consumer services:
These include the services that we use in modern life.
Example: transport, entertainment communication, legal, education, and health services, etc.
Exchange:
Exchange is the act of buying and selling goods and services either in the form of barter or through a market.
The modern system of exchange depends upon the use of money. We sell our goods and services for money and then use this money to buy the goods and services that others have produced.
Revision questions:
1. What is the basic economic problem common to all societies?
A. The allocation of scarce resources.
B. The elimination of inflation.
C. The need to achieve full employment.
D. The need to reduce taxation.
2. How can economics be defined?
A. Economics is a study of limited resources only.
B. Economics is a science that studies limited wants only.
C. Economics is a social science which studies human behavior as a
relationship between ends and scarce means which have alternative uses .
D. Economics is a study of limited wants and unlimited resources.
3. Which one of the following is true?
A. Wants are limited and resources are unlimited.
B. Wants are unlimited and resources are limited.
C. Wants are limited and resources are limited.
D. Wants are unlimited and resources are unlimited.
4. Which one of the following is an example of free goods?
A. Free food offered to poor people. B. Free traveling.
C. Free meal in a restaurant. D. air
5. What is the term used to describe a situation whereby a student is unable to buy a school bag because he has bought an account textbook?
A. Wants.
B. Opportunity cost.
C. Social cost.
D. Resources.
6. How can the term “opportunity cost” be defined?
A. The next best opportunity to buy a product.
B. The next best alternative forgone.
C. The next best alternative forgone.
D. The next best opportunity to sell a product.
7. What is the main objective of production?
A. To satisfy human wants.
B. To help management.
C. To help the government in controlling the economy.
D. To provide free goods.
8. A carpenter works five 9-hour days each week and produces wooden bowls at a rate of 2 per hour. What is the opportunity cost of taking a holiday on a working day?
A. $5
B. $10
C. 2 bowls
D. 18 bowls
9. The need to make choice arises because
A. wants are limited
B. resources are limited
C. resources to satisfy our wants are scarce
D. goods and services are unlimited
10. The basic economic problems of any economy are
A. what to produce
B. what and how to produce
C. for whom to produce
D. what, how and fro whom to produce
11. Resources are also known as
A. consumer goods
B. public goods
C. wants
D. factors of production
12. Which of the following choices would be classed as part of the basic economic problem?
A. To have public rather than private ownership of industry.
B. To use direct taxes rather than indirect taxes
C. To use fiscal rather than monetary policy
D. To use land for industry rather than agriculture.
13. A student leaves school and decides to spend the next two years at a college improving her qualifications. What is the opportunity cost for improving her qualifications for the next two years?
A. The extra money she will earn as a result of her improved qualifications
B. The money she would have earned if she had been in work for the two years.
C. The increase in job opportunities she will have as a result of her extra qualifications.
D. The lost production due to her not being in work.
E. The cost of the course fees at the college.
14. An artist works five 8-hour days each week and produces greeting cards at the rate of 150 per hour. She sells the cards for 110 cents each. What is the opportunity cost of taking a holiday on a working day?
A.10 cents B. 150 cents C. 150 cards
D. 1200 cards E. 6000 cards.
15. Which of the following describes the opportunity cost to society of building a new school?
A. The money spend on building the school
B. The increase in taxation to pay for the school
C. The extra cost of producing equipment and teachers to run the school efficiently.
D. The goods and services that could have been produced instead of the school.
16. Commercial companies are cutting tropical rain forests for hardwood timber. What is the opportunity cost to society of this activity?
A. The revenue from the sale of the timber
B. The natural habitat that is lost.
C. The products made from the timber
D. The value of the land cleared of timber
E. The profits of the companies
17. A housewife knits 5 baby garments a day. What is the opportunity cost if she stops knitting for two days and bakes bread instead?
A. Ten garments
B. The cost of the flour for the bread.
C. The cost of the wool she would have used.
D. The value of the bread produced.
18. Which combination of features describes the basic economic problem?
Factors of production Wants
A. Limited Limited
B. Limited Unlimited
C. Unlimited Limited
D. Unlimited Unlimited
19. A person makes sandwiches at home for five hours each day. She makes 20 sandwiches per hour, which she sells for $2 each. What is the opportunity cost if she takes a holiday on a working day?
A. $2 B. $40 C. 20 sandwiches D. 100 sandwiches
20. When economist says that something is scare; what does it mean to them?
A) Some thing is rare
B) Something is available very small quantity
C) Something is available enough quantity
D) Not enough quantity available to satisfy everyone’s wants
21. Which of the following can be considered as free goods but not as economic goods?
A) ice B) sand C) air D) sunshine
22. Which of the following is correct about free goods?
A) They can be obtained without sacrificing something
B) Sacrificing is must to obtain these goods
C) They have less cost of production
D) The production of these goods uses up scarce resources
23. We make choice because we have:
A) Unlimited wants and limited resources
B) Limited resources and limited wants
C) Unlimited wants and unlimited resources
D) Unlimited resources and limited wants
24. The principal of your school awarded you a cap for your outstanding performance in G.C.E ‘O’ level examination. Here the ‘cap’ is not considered as free good because.
A) It is freely available to you
B) It does not have opportunity cost
C) Zero price does not mean zero cost
D) It is not limited in supply
25. Scarcity is a feature of:
A) poor society only
B) rich society only
C) all societies
D) developed society
26. Which of the following goods does not require resources to produce them?
A) Economic goods
B) Free goods
C) Merit goods
D) Social goods
27. The total quantity of goods and services produced in any country is:
A) determined by the labour force
B) sufficient to satisfy people’s need
C) unlimited in supply
D) less than what people want
28. Economic problem arises because:
A) wants are unlimited
B) resources are scarce
C) scarce resources have limited uses
D) a particular want is satiable
29. Charles wants to buy either a pen or an apple with all his pocket money. He does not like either a chocolate or an orange .If he decides to buy a pen, and then the opportunity cost of it is:
A) an orange
B) an apple
C) a chocolate
D) none of the above
EXERCISE -1
1. Define the economic problem?
2. What is scarcity?
3. Explain opportunity cost?
4. What are the durable consumer goods?
4. What are the non-durable consumer goods?
5. Write the difference between needs and wants?
6. What are economic goods?
7. What is utility?
8. Distinguish between free goods and economic goods?
9. What do you mean by an exchange?
10. Who is a consumer?
Cross Word Puzzle:
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Sunday, May 2, 2010
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