Economics: Production Possibility Frontier

Economics and Scarcity

Economics is the study of how people employ limited resources to meet boundless demand. At the heart of economics is the idea that the world is overrun with scarcity, implying that there is a scarcity of the commodities we all desire. Scarcity is the condition that happens when there are insufficient resources to meet all of society’s or people’s requirements (Federal Reserve Bank of Philadelphia, 2006).

Scarcity and Opportunity Cost

It typically refers the decision society and individuals make for the use of materials or resources that can be deemed scarce, on the other hand, opportunity cost refers to the next highest valued alternative that is offered when the choice is made. In a nutshell in economics, scarcity will refer to limited resources against unlimited demand the choice is the alternative between the two. Economic deals with the study of behavior and how human allocated their limited resource with their unlimited wants. Plagued with scarcity we a presented with a choice that we must make regarding the available resources usually we must give up something. Resources that we choose to give up can be described as opportunity cost. From the Federal Reserve Bank of Philadelphia (2006), the opportunity cost is described as the highest esteemed substitute to the choice that was selected. If for instance, we choose to select a good using a particular resource, then the opportunity cost can be seen to be the substitute for using this particular scarce resource. It is impossible to have it all particularly because of the limited available resources that can be considered to be scarce.

Economic Choices and Opportunity Cost

According to Academic Library (2014), the basic comprehension on economic choices is that they all have a cost. Economist sees opportunity cost of any choice regarding what was given up if resources are employed in one way rather than the other. Typically the opportunity cost of a choice characterizes the best alternative of the scarce resource. Production firms are typically tasked with making decisions on how best use of the scarce resource to satisfy market demands. I run an ice-cream parlor in the central business district in Chicago, I have two flavors to use in making my famous ice-cream, they are; strawberry and Chocolate. The chocolate favor retails at $40 while the latter, i.e., the Strawberry flavor retails at $35. I select chocolate flavor because I believe it’s the more preferred flavor and it attracts more consumers, and thus it rakes in more profit for the parlor, and I decide to ignore the strawberry flavor. With the decision to choose chocolate and overlook the strawberry flavor, the opportunity cost is the enjoyment and cost saving that is associated with the strawberry flavor. From this opportunity cost is distinctly defined and the choice and logic behind the choice selected is clearly defined.

Production Possibility Frontier (PPF)

The PPF (Production Possibility Frontier) is an economic model that can be used to illustrate possible production for the two products at a particular point in time. In addition to this economic model will also be used to illustrate the opportunity cost that the A-Ice-Cream Parlor might incur at any point along the production possibility frontier. The PPF can be seen as a simplification of reality since the model illustrates the opportunity costs that are a consequence of the production of a particular product over another.

Reference

Academic Library. 2014. Deciphering Economics: Timely Topics Explained. Retrieved From https://academlib.com/1487/economics/basic_economic_concepts

Federal Reserve Bank of Philadelphia. 2006. Opportunity Cost, Scarcity, and Choice. Retrieved From https://www.philadelphiafed.org/education/teachers/publications/intersections/2006/spring/opportunity-cost