WITH THE AID OF DIAGRAMS

WITH THE AID OF DIAGRAMS, ILLUSTRATE HOW ONE CAN USE THE PRODUCTION POSSIBILITY FRONTIER TO EXPLAIN THE ECONOMIC CONCEPTS OF SCARCITY, CHOICE AND OPPORTUNITY COST
The concepts of scarcity, choice and opportunity cost can be explained with reference to the production possibility curve. Resources to produce goods and services are never enough (scarcity) hence the need to make a choice on what to produce and what not to produce (choice). Making a choice results in opportunity cost of the benefit forgone by not selecting the alternative courses of action. This assertion clearly demonstrates the complexity and difficulty management face in making decisions as resources are always scarce and there is need to satisfy unlimited human needs.
Scarcity is the situation where resources are insufficient to produce goods and services to satisfy unlimited human wants. Due to scarcity, an economy or society chooses what goods and services to produce and not produce. The availability of limited resources to meet unlimited nature of human wants that the resources are meant to satisfy best describes the concept of scarcity. According to Richard G. Lipsey (1976), because there are not enough resources to produce everything we would like to consume, there must exist some mechanism by which it is decided what will be done and what will be left undone, what goods will be produced and what left unproduced, and whose wants will be satisfied and whose left unsatisfied. The assertion by Lipsey clearly shows that a choice has to be made among alternative courses of action or production choices. Choices are made basing on rational behaviour by economic agents to maximise their desired goals such as profit or maximisation of utility for firms and individuals respectively. Given limited scope for choice as a result of constraints on resources, the decision to select a certain course of action means that we have to forego other courses of action and their associated benefits (opportunity cost). This is in agreement to Samuelson- Nordhaus (2010) who defined opportunity cost as the second best alternative foregone when making the best choice. This is further expounded by Mabry Ulbrich (1994) assertion that the cost of choosing to utilise a resource for one purpose is measured by the sacrifice of the next best alternative using the resource.
The Production Possibility Curve (PPC) reflects scarcity, choice and opportunity cost as closely related and interrelated concepts. The PPC shows all the different product combinations of the goods that can be produced in an economy when available factors of production are optimally and efficiently employed, given the state technological advancement in the country. There is therefore need to strike a balance between the different product combinations in accordance with the organisational goal at the same time ensuring that the maximum potential of the scarce factors of production is realised.
A
Y1 C
• D (unattainable)
Y2 F
PPF

0 X1 X2 B
Good X (Tonnes)
The diagram above shows the Production Possibility Boundary or Curve. The curve or frontier shows how organisations or economies decide on what goods or services to produce, their quantities and the target beneficiary. This choice is key in sustaining economies and has to be made after thorough considerations. The organisations or economies must be prepared to meet the cost of not producing the forgone product. As depicted on the model, a comparison is made between two goods at a time where decisions to produce should be taken thus clearly depicting the correlated concepts of scarcity, choice and opportunity cost. The three are key economic concepts that require clear understanding and balancing by management or economies as they are extremely influential in making decisions in any productive economy. This is so because as an economy or an organisation produces more of a certain product, the inherent costs also increase due to additional resources needed to produce the additional product. For example, suppose it costs Delta Beverages fifteen dollars to produce a crate of coca cola soft drinks, the decision by the company to produce an additional crate to double the number of crates means that it has to pay another fifteen dollars more and the trend continues with increase in production. The additional cost has an effect on the other competing product on the production line. The process goes on continuously with the costs of production increasing as the number of crates increases.
As shown on the diagram above, the production possibility frontier or boundary is normally drawn as bulging outwards if one views from the point of origin. However, the frontier or curve can be represented as bulging downward or linear depending on a quantity of assumptions being considered. The curve thus illustrates a number of concepts of economics, such as limit or scarcity of resources required which is a key economic challenge faced by societies, organisations or economies in all parts of the world are grappling with. It therefore calls for efficiency in production to achieve the best use of resources available. The curve as shown on the above diagram represents the optimum level of production for the two goods X and Y. The curve A to B on the diagram represents the optimum level of production for an organisation or economy. Therefore any production along the curve is regarded as efficient while production outside the curve is viewed as desirable but unattainable or inefficient depending on the direction of movement. Countries thus strive to balance usage of the factors of production by producing along the boundary or frontier. Efficient production means that the economy or organisation is producing at the optimum level where there is efficient utilisation of available resources. In other words, the economy is producing most with the least possible amount of resources. This implies that since resources are always scarce, the ideal is to produce at points along the curve where there is best utilisation of the scarce resources.
Choice of production to be made by an organisation or economy is illustrated by the decision a country makes between available product combinations along the production possibility curve. For instance, from the production possibility curve above, a firm or organisation must decide whether it produces Y1 and X1 combination or Y2 and X2 combination. The combinations mean that choice has to be made on production mix of products X and Y. For example if good Y represents capital goods and good X represents consumer goods, an economy has to make a choice between combination Y1 and X1 which means more capital goods and less consumer goods and combination Y2 and X2, which has more consumer goods and less capital goods. This so because the resources are never enough to sustain production of both goods to the level wanted. The million dollar question in the study of economics is how the choice is made. This choice is dependent upon the overall objective of the organisation or economy. In addition, the overall or strategic benefit of the choices made has to be weighed before a choice is made. Faced with such a situation, an economy whose overall thrust is growing the country’s economy, may take an economic decision to produce more capital goods than consumer goods. This choice is also dependant on the level of development in the country. Decisions on what to produce in a developing country may be biased towards capital goods compared to consumer goods and the opposite is regarded as true for developed nations. Change in societal preferences and tastes leads to a shift on the curve depicting a change of choice. Technological advancement may be one of the reasons in the shift of societal preferences and tastes with society choosing new technology over the old. For instance, the invention of the cellular phone has led to a change in the preferences of society from use of land line to the cellular phones. Given such a scenario, an organisation may shift production with inclination towards manufacturing of more cellular phones than landline handsets. The company may also try and add new features to the landline to attract back the customers lost. The company may also take a decision to reduce the price of the land line calls so that it remains competitive.
Opportunity cost is clearly depicted on the Production Possibility Curve above. From a preliminary point on the curve, if productive resources are not increased, escalating production of good X means a decrease in production of good Y, as resources have to be transferred from producing good Y to X. Points along the curve (C and F) reveal the trade off between the two goods. The compromise in the production of good Y is termed the opportunity cost because increasing production of good X entails loss in the opportunity to produce a certain amount of good Y. Opportunity cost is thus measured in the number of units of the good Y not produced by giving way to more units of good X. It can thus be safely said that opportunity cost is directly related to the shape of the PPC curve. If the PPC shape is a straight line, then opportunity cost is said to be constant as production changes. However, opportunity cost usually varies depending on the beginning and end points. The curve shape is mainly concave to the start point due to the fact that the opportunity cost of producing each good increases as its quantity increases. Knowledge of opportunity cost as an economic concept is critical in making production mixes or combinations in any organisation. Once again, choices have to be made dependent upon various factors and the overall aim of the organisation or economy.
The curve gives a true reflection of the efficiency of an economy in terms of production. However there are instances when the curve shifts to the right or left. Outward or inward shifts on the curve can be attributed to changes in the economy that is growth or recession. If the curve shifts outwards, it means that there is growth or increased output while inwards shift reflects decreasing output. Factors such as technological advancement, increase or decrease in factors of production among other changes have the capacity to move the PPC. Rise in production capacity in an economy results in the curve shifting outwards decreasing scarcity and vice versa. As the PPC bulges outwards, some previously unattainable points will become attainable. The quantity or quality of factors of production in an economy has the capacity to boost production in that economy. For example, a country may decide to improve education and training of workforce leading to improved human capital. This will increase the knowledge and skills of labour thus enhancing capacity of production in the economy thus shifting the curve out.
Points that are inside and along the PPC such as points C and F are achievable, however point D that lies outside the PPC is desirable but not attainable. Point D is said to be desirable but unattainable mainly due to the fact that resources are never enough to do everything an economy or organization needs at one goal. In other words, unattainable points that lie outside the PPC such as D, reflect scarcity on the PPC as shown on the diagram above. We have to forego other products or reduce quantity of one product to boost production of the other. Choices or decisions on production mixes have to be made. For instance if an organisation chooses to allocate all the resources to produce commodity Y at A, no production of commodity X will be realised and that is opportunity cost of the choice made. In real life economic application, a choice has to be made on which product to produce at the expense of the other. The type and nature or importance of the goods is critical in deciding the allocation of the necessary resources to produce a certain good over another. For example, a country may choose to produce more of capital goods compared to consumer goods due to their effect on economic growth of a country. Basing on this example, the opportunity cost of producing capital goods for the country is the number of consumer goods that were foregone. Alternatively, the organisation may decide to allocate its scarce resources to the production only of good X as represented by B. The result is now the opportunity cost of Y that could have been produced. This implies that an organisation should make a choice of what to produce and what not to produce. The end result is opportunity cost associated with choosing a certain course of action over another. The organisation or firm cannot benefit both. Opportunity cost is illustrated by the negative slope of the curve which indicates that more of one good can only be obtained by sacrificing the other good.
Ideally, organisations or even economies do not operate at the extremes but seek to strike a balance in the production of goods X and Y. The ideal however would be to produce outside curve AB but it is not possible due to scarce resources and organisational efficiencies. Increase in resources and or production efficiency may be a way to reach point D. Production at D can also be realised if there are changes in factor inputs, changes in population, discovery of new materials, changes in technology etc. An example would be a new technological invention resulting in a cheaper way of manufacturing certain goods or services. When the firm or organisation produces at point E or within the PPC, it implies that there is under utilisation of resources or there is inefficiency in the utilisation of resources hence measures have to be taken. On the same note, moving production of goods from E to the end of the curve AB means that resources are being fully utilised.
The PPC relates to us the concepts of scarcity, choice and opportunity cost. Points on and inside the PPC are achievable while those that are outside are not. The unattainable points thus reflect scarcity. Since the PPC comprises of a series of points along the curve, choice has to be made among alternative choices. The concept of opportunity cost is reflected by the negative slope of the PPC indicating the effect of increasing production of one good over another. Management therefore needs to make decisions on what to produce and what not to produce In addition, decisions must also be taken to come up the correct product combinations to facilitate the survival of the organization. The concepts of scarcity, opportunity cost and choice are thus critical concepts in decision making in economies.

REFERENCES:
Chidakwa, M. (2000) Business and its Environment, Zimbabwe Open University (ZOU) module
Chrisholm, RK and Mc Carty MH. (1981), Principles of Economics. 2nd Edition Foresman and Company Scott.
Davies, H (2001) Managerial Economics, 3rd Edition, Prentice Hall, New Jersey
Government of Zimbabwe (1998) Zimbabwe Programme For Economic and Social Transformation (ZIMPREST) 1996-2000
Hagendon, J. (1995), An Introduction to Modern Economics. 3rd Edition, Longman, London.
Hardwick, P. (1995), Modern Economics. Prentice Hall, New Jersey.
Histones, T.J. (1988), Basic Economics, 6th Edition South Western Publishing Co.
Lipsey and Chrystal, (1999) Oxford University Press 11th Edition.
Richard G. Lipsey. (1976). An Introduction to positive Economics 4th Edition.

WITH THE AID OF DIAGRAMS, ILLUSTRATE HOW ONE CAN USE THE PRODUCTION POSSIBILITY FRONTIER TO EXPLAIN THE ECONOMIC CONCEPTS OF SCARCITY, CHOICE AND OPPORTUNITY COST
The concepts of scarcity, choice and opportunity cost can be explained with reference to the production possibility curve. Resources to produce goods and services are never enough (scarcity) hence the need to make a choice on what to produce and what not to produce (choice). Making a choice results in opportunity cost of the benefit forgone by not selecting the alternative courses of action. This assertion clearly demonstrates the complexity and difficulty management face in making decisions as resources are always scarce and there is need to satisfy unlimited human needs.
Scarcity is the situation where resources are insufficient to produce goods and services to satisfy unlimited human wants. Due to scarcity, an economy or society chooses what goods and services to produce and not produce. The availability of limited resources to meet unlimited nature of human wants that the resources are meant to satisfy best describes the concept of scarcity. According to Richard G. Lipsey (1976), because there are not enough resources to produce everything we would like to consume, there must exist some mechanism by which it is decided what will be done and what will be left undone, what goods will be produced and what left unproduced, and whose wants will be satisfied and whose left unsatisfied. The assertion by Lipsey clearly shows that a choice has to be made among alternative courses of action or production choices. Choices are made basing on rational behaviour by economic agents to maximise their desired goals such as profit or maximisation of utility for firms and individuals respectively. Given limited scope for choice as a result of constraints on resources, the decision to select a certain course of action means that we have to forego other courses of action and their associated benefits (opportunity cost). This is in agreement to Samuelson- Nordhaus (2010) who defined opportunity cost as the second best alternative foregone when making the best choice. This is further expounded by Mabry Ulbrich (1994) assertion that the cost of choosing to utilise a resource for one purpose is measured by the sacrifice of the next best alternative using the resource.
The Production Possibility Curve (PPC) reflects scarcity, choice and opportunity cost as closely related and interrelated concepts. The PPC shows all the different product combinations of the goods that can be produced in an economy when available factors of production are optimally and efficiently employed, given the state technological advancement in the country. There is therefore need to strike a balance between the different product combinations in accordance with the organisational goal at the same time ensuring that the maximum potential of the scarce factors of production is realised.
A
Y1 C
• D (unattainable)
Y2 F
PPF

0 X1 X2 B
Good X (Tonnes)
The diagram above shows the Production Possibility Boundary or Curve. The curve or frontier shows how organisations or economies decide on what goods or services to produce, their quantities and the target beneficiary. This choice is key in sustaining economies and has to be made after thorough considerations. The organisations or economies must be prepared to meet the cost of not producing the forgone product. As depicted on the model, a comparison is made between two goods at a time where decisions to produce should be taken thus clearly depicting the correlated concepts of scarcity, choice and opportunity cost. The three are key economic concepts that require clear understanding and balancing by management or economies as they are extremely influential in making decisions in any productive economy. This is so because as an economy or an organisation produces more of a certain product, the inherent costs also increase due to additional resources needed to produce the additional product. For example, suppose it costs Delta Beverages fifteen dollars to produce a crate of coca cola soft drinks, the decision by the company to produce an additional crate to double the number of crates means that it has to pay another fifteen dollars more and the trend continues with increase in production. The additional cost has an effect on the other competing product on the production line. The process goes on continuously with the costs of production increasing as the number of crates increases.
As shown on the diagram above, the production possibility frontier or boundary is normally drawn as bulging outwards if one views from the point of origin. However, the frontier or curve can be represented as bulging downward or linear depending on a quantity of assumptions being considered. The curve thus illustrates a number of concepts of economics, such as limit or scarcity of resources required which is a key economic challenge faced by societies, organisations or economies in all parts of the world are grappling with. It therefore calls for efficiency in production to achieve the best use of resources available. The curve as shown on the above diagram represents the optimum level of production for the two goods X and Y. The curve A to B on the diagram represents the optimum level of production for an organisation or economy. Therefore any production along the curve is regarded as efficient while production outside the curve is viewed as desirable but unattainable or inefficient depending on the direction of movement. Countries thus strive to balance usage of the factors of production by producing along the boundary or frontier. Efficient production means that the economy or organisation is producing at the optimum level where there is efficient utilisation of available resources. In other words, the economy is producing most with the least possible amount of resources. This implies that since resources are always scarce, the ideal is to produce at points along the curve where there is best utilisation of the scarce resources.
Choice of production to be made by an organisation or economy is illustrated by the decision a country makes between available product combinations along the production possibility curve. For instance, from the production possibility curve above, a firm or organisation must decide whether it produces Y1 and X1 combination or Y2 and X2 combination. The combinations mean that choice has to be made on production mix of products X and Y. For example if good Y represents capital goods and good X represents consumer goods, an economy has to make a choice between combination Y1 and X1 which means more capital goods and less consumer goods and combination Y2 and X2, which has more consumer goods and less capital goods. This so because the resources are never enough to sustain production of both goods to the level wanted. The million dollar question in the study of economics is how the choice is made. This choice is dependent upon the overall objective of the organisation or economy. In addition, the overall or strategic benefit of the choices made has to be weighed before a choice is made. Faced with such a situation, an economy whose overall thrust is growing the country’s economy, may take an economic decision to produce more capital goods than consumer goods. This choice is also dependant on the level of development in the country. Decisions on what to produce in a developing country may be biased towards capital goods compared to consumer goods and the opposite is regarded as true for developed nations. Change in societal preferences and tastes leads to a shift on the curve depicting a change of choice. Technological advancement may be one of the reasons in the shift of societal preferences and tastes with society choosing new technology over the old. For instance, the invention of the cellular phone has led to a change in the preferences of society from use of land line to the cellular phones. Given such a scenario, an organisation may shift production with inclination towards manufacturing of more cellular phones than landline handsets. The company may also try and add new features to the landline to attract back the customers lost. The company may also take a decision to reduce the price of the land line calls so that it remains competitive.
Opportunity cost is clearly depicted on the Production Possibility Curve above. From a preliminary point on the curve, if productive resources are not increased, escalating production of good X means a decrease in production of good Y, as resources have to be transferred from producing good Y to X. Points along the curve (C and F) reveal the trade off between the two goods. The compromise in the production of good Y is termed the opportunity cost because increasing production of good X entails loss in the opportunity to produce a certain amount of good Y. Opportunity cost is thus measured in the number of units of the good Y not produced by giving way to more units of good X. It can thus be safely said that opportunity cost is directly related to the shape of the PPC curve. If the PPC shape is a straight line, then opportunity cost is said to be constant as production changes. However, opportunity cost usually varies depending on the beginning and end points. The curve shape is mainly concave to the start point due to the fact that the opportunity cost of producing each good increases as its quantity increases. Knowledge of opportunity cost as an economic concept is critical in making production mixes or combinations in any organisation. Once again, choices have to be made dependent upon various factors and the overall aim of the organisation or economy.
The curve gives a true reflection of the efficiency of an economy in terms of production. However there are instances when the curve shifts to the right or left. Outward or inward shifts on the curve can be attributed to changes in the economy that is growth or recession. If the curve shifts outwards, it means that there is growth or increased output while inwards shift reflects decreasing output. Factors such as technological advancement, increase or decrease in factors of production among other changes have the capacity to move the PPC. Rise in production capacity in an economy results in the curve shifting outwards decreasing scarcity and vice versa. As the PPC bulges outwards, some previously unattainable points will become attainable. The quantity or quality of factors of production in an economy has the capacity to boost production in that economy. For example, a country may decide to improve education and training of workforce leading to improved human capital. This will increase the knowledge and skills of labour thus enhancing capacity of production in the economy thus shifting the curve out.
Points that are inside and along the PPC such as points C and F are achievable, however point D that lies outside the PPC is desirable but not attainable. Point D is said to be desirable but unattainable mainly due to the fact that resources are never enough to do everything an economy or organization needs at one goal. In other words, unattainable points that lie outside the PPC such as D, reflect scarcity on the PPC as shown on the diagram above. We have to forego other products or reduce quantity of one product to boost production of the other. Choices or decisions on production mixes have to be made. For instance if an organisation chooses to allocate all the resources to produce commodity Y at A, no production of commodity X will be realised and that is opportunity cost of the choice made. In real life economic application, a choice has to be made on which product to produce at the expense of the other. The type and nature or importance of the goods is critical in deciding the allocation of the necessary resources to produce a certain good over another. For example, a country may choose to produce more of capital goods compared to consumer goods due to their effect on economic growth of a country. Basing on this example, the opportunity cost of producing capital goods for the country is the number of consumer goods that were foregone. Alternatively, the organisation may decide to allocate its scarce resources to the production only of good X as represented by B. The result is now the opportunity cost of Y that could have been produced. This implies that an organisation should make a choice of what to produce and what not to produce. The end result is opportunity cost associated with choosing a certain course of action over another. The organisation or firm cannot benefit both. Opportunity cost is illustrated by the negative slope of the curve which indicates that more of one good can only be obtained by sacrificing the other good.
Ideally, organisations or even economies do not operate at the extremes but seek to strike a balance in the production of goods X and Y. The ideal however would be to produce outside curve AB but it is not possible due to scarce resources and organisational efficiencies. Increase in resources and or production efficiency may be a way to reach point D. Production at D can also be realised if there are changes in factor inputs, changes in population, discovery of new materials, changes in technology etc. An example would be a new technological invention resulting in a cheaper way of manufacturing certain goods or services. When the firm or organisation produces at point E or within the PPC, it implies that there is under utilisation of resources or there is inefficiency in the utilisation of resources hence measures have to be taken. On the same note, moving production of goods from E to the end of the curve AB means that resources are being fully utilised.
The PPC relates to us the concepts of scarcity, choice and opportunity cost. Points on and inside the PPC are achievable while those that are outside are not. The unattainable points thus reflect scarcity. Since the PPC comprises of a series of points along the curve, choice has to be made among alternative choices. The concept of opportunity cost is reflected by the negative slope of the PPC indicating the effect of increasing production of one good over another. Management therefore needs to make decisions on what to produce and what not to produce In addition, decisions must also be taken to come up the correct product combinations to facilitate the survival of the organization. The concepts of scarcity, opportunity cost and choice are thus critical concepts in decision making in economies.

REFERENCES:
Chidakwa, M. (2000) Business and its Environment, Zimbabwe Open University (ZOU) module
Chrisholm, RK and Mc Carty MH. (1981), Principles of Economics. 2nd Edition Foresman and Company Scott.
Davies, H (2001) Managerial Economics, 3rd Edition, Prentice Hall, New Jersey
Government of Zimbabwe (1998) Zimbabwe Programme For Economic and Social Transformation (ZIMPREST) 1996-2000
Hagendon, J. (1995), An Introduction to Modern Economics. 3rd Edition, Longman, London.
Hardwick, P. (1995), Modern Economics. Prentice Hall, New Jersey.
Histones, T.J. (1988), Basic Economics, 6th Edition South Western Publishing Co.
Lipsey and Chrystal, (1999) Oxford University Press 11th Edition.
Richard G. Lipsey. (1976). An Introduction to positive Economics 4th Edition.

WITH THE AID OF DIAGRAMS, ILLUSTRATE HOW ONE CAN USE THE PRODUCTION POSSIBILITY FRONTIER TO EXPLAIN THE ECONOMIC CONCEPTS OF SCARCITY, CHOICE AND OPPORTUNITY COST
The concepts of scarcity, choice and opportunity cost can be explained with reference to the production possibility curve. Resources to produce goods and services are never enough (scarcity) hence the need to make a choice on what to produce and what not to produce (choice). Making a choice results in opportunity cost of the benefit forgone by not selecting the alternative courses of action. This assertion clearly demonstrates the complexity and difficulty management face in making decisions as resources are always scarce and there is need to satisfy unlimited human needs.
Scarcity is the situation where resources are insufficient to produce goods and services to satisfy unlimited human wants. Due to scarcity, an economy or society chooses what goods and services to produce and not produce. The availability of limited resources to meet unlimited nature of human wants that the resources are meant to satisfy best describes the concept of scarcity. According to Richard G. Lipsey (1976), because there are not enough resources to produce everything we would like to consume, there must exist some mechanism by which it is decided what will be done and what will be left undone, what goods will be produced and what left unproduced, and whose wants will be satisfied and whose left unsatisfied. The assertion by Lipsey clearly shows that a choice has to be made among alternative courses of action or production choices. Choices are made basing on rational behaviour by economic agents to maximise their desired goals such as profit or maximisation of utility for firms and individuals respectively. Given limited scope for choice as a result of constraints on resources, the decision to select a certain course of action means that we have to forego other courses of action and their associated benefits (opportunity cost). This is in agreement to Samuelson- Nordhaus (2010) who defined opportunity cost as the second best alternative foregone when making the best choice. This is further expounded by Mabry Ulbrich (1994) assertion that the cost of choosing to utilise a resource for one purpose is measured by the sacrifice of the next best alternative using the resource.
The Production Possibility Curve (PPC) reflects scarcity, choice and opportunity cost as closely related and interrelated concepts. The PPC shows all the different product combinations of the goods that can be produced in an economy when available factors of production are optimally and efficiently employed, given the state technological advancement in the country. There is therefore need to strike a balance between the different product combinations in accordance with the organisational goal at the same time ensuring that the maximum potential of the scarce factors of production is realised.
A
Y1 C
• D (unattainable)
Y2 F
PPF

0 X1 X2 B
Good X (Tonnes)
The diagram above shows the Production Possibility Boundary or Curve. The curve or frontier shows how organisations or economies decide on what goods or services to produce, their quantities and the target beneficiary. This choice is key in sustaining economies and has to be made after thorough considerations. The organisations or economies must be prepared to meet the cost of not producing the forgone product. As depicted on the model, a comparison is made between two goods at a time where decisions to produce should be taken thus clearly depicting the correlated concepts of scarcity, choice and opportunity cost. The three are key economic concepts that require clear understanding and balancing by management or economies as they are extremely influential in making decisions in any productive economy. This is so because as an economy or an organisation produces more of a certain product, the inherent costs also increase due to additional resources needed to produce the additional product. For example, suppose it costs Delta Beverages fifteen dollars to produce a crate of coca cola soft drinks, the decision by the company to produce an additional crate to double the number of crates means that it has to pay another fifteen dollars more and the trend continues with increase in production. The additional cost has an effect on the other competing product on the production line. The process goes on continuously with the costs of production increasing as the number of crates increases.
As shown on the diagram above, the production possibility frontier or boundary is normally drawn as bulging outwards if one views from the point of origin. However, the frontier or curve can be represented as bulging downward or linear depending on a quantity of assumptions being considered. The curve thus illustrates a number of concepts of economics, such as limit or scarcity of resources required which is a key economic challenge faced by societies, organisations or economies in all parts of the world are grappling with. It therefore calls for efficiency in production to achieve the best use of resources available. The curve as shown on the above diagram represents the optimum level of production for the two goods X and Y. The curve A to B on the diagram represents the optimum level of production for an organisation or economy. Therefore any production along the curve is regarded as efficient while production outside the curve is viewed as desirable but unattainable or inefficient depending on the direction of movement. Countries thus strive to balance usage of the factors of production by producing along the boundary or frontier. Efficient production means that the economy or organisation is producing at the optimum level where there is efficient utilisation of available resources. In other words, the economy is producing most with the least possible amount of resources. This implies that since resources are always scarce, the ideal is to produce at points along the curve where there is best utilisation of the scarce resources.
Choice of production to be made by an organisation or economy is illustrated by the decision a country makes between available product combinations along the production possibility curve. For instance, from the production possibility curve above, a firm or organisation must decide whether it produces Y1 and X1 combination or Y2 and X2 combination. The combinations mean that choice has to be made on production mix of products X and Y. For example if good Y represents capital goods and good X represents consumer goods, an economy has to make a choice between combination Y1 and X1 which means more capital goods and less consumer goods and combination Y2 and X2, which has more consumer goods and less capital goods. This so because the resources are never enough to sustain production of both goods to the level wanted. The million dollar question in the study of economics is how the choice is made. This choice is dependent upon the overall objective of the organisation or economy. In addition, the overall or strategic benefit of the choices made has to be weighed before a choice is made. Faced with such a situation, an economy whose overall thrust is growing the country’s economy, may take an economic decision to produce more capital goods than consumer goods. This choice is also dependant on the level of development in the country. Decisions on what to produce in a developing country may be biased towards capital goods compared to consumer goods and the opposite is regarded as true for developed nations. Change in societal preferences and tastes leads to a shift on the curve depicting a change of choice. Technological advancement may be one of the reasons in the shift of societal preferences and tastes with society choosing new technology over the old. For instance, the invention of the cellular phone has led to a change in the preferences of society from use of land line to the cellular phones. Given such a scenario, an organisation may shift production with inclination towards manufacturing of more cellular phones than landline handsets. The company may also try and add new features to the landline to attract back the customers lost. The company may also take a decision to reduce the price of the land line calls so that it remains competitive.
Opportunity cost is clearly depicted on the Production Possibility Curve above. From a preliminary point on the curve, if productive resources are not increased, escalating production of good X means a decrease in production of good Y, as resources have to be transferred from producing good Y to X. Points along the curve (C and F) reveal the trade off between the two goods. The compromise in the production of good Y is termed the opportunity cost because increasing production of good X entails loss in the opportunity to produce a certain amount of good Y. Opportunity cost is thus measured in the number of units of the good Y not produced by giving way to more units of good X. It can thus be safely said that opportunity cost is directly related to the shape of the PPC curve. If the PPC shape is a straight line, then opportunity cost is said to be constant as production changes. However, opportunity cost usually varies depending on the beginning and end points. The curve shape is mainly concave to the start point due to the fact that the opportunity cost of producing each good increases as its quantity increases. Knowledge of opportunity cost as an economic concept is critical in making production mixes or combinations in any organisation. Once again, choices have to be made dependent upon various factors and the overall aim of the organisation or economy.
The curve gives a true reflection of the efficiency of an economy in terms of production. However there are instances when the curve shifts to the right or left. Outward or inward shifts on the curve can be attributed to changes in the economy that is growth or recession. If the curve shifts outwards, it means that there is growth or increased output while inwards shift reflects decreasing output. Factors such as technological advancement, increase or decrease in factors of production among other changes have the capacity to move the PPC. Rise in production capacity in an economy results in the curve shifting outwards decreasing scarcity and vice versa. As the PPC bulges outwards, some previously unattainable points will become attainable. The quantity or quality of factors of production in an economy has the capacity to boost production in that economy. For example, a country may decide to improve education and training of workforce leading to improved human capital. This will increase the knowledge and skills of labour thus enhancing capacity of production in the economy thus shifting the curve out.
Points that are inside and along the PPC such as points C and F are achievable, however point D that lies outside the PPC is desirable but not attainable. Point D is said to be desirable but unattainable mainly due to the fact that resources are never enough to do everything an economy or organization needs at one goal. In other words, unattainable points that lie outside the PPC such as D, reflect scarcity on the PPC as shown on the diagram above. We have to forego other products or reduce quantity of one product to boost production of the other. Choices or decisions on production mixes have to be made. For instance if an organisation chooses to allocate all the resources to produce commodity Y at A, no production of commodity X will be realised and that is opportunity cost of the choice made. In real life economic application, a choice has to be made on which product to produce at the expense of the other. The type and nature or importance of the goods is critical in deciding the allocation of the necessary resources to produce a certain good over another. For example, a country may choose to produce more of capital goods compared to consumer goods due to their effect on economic growth of a country. Basing on this example, the opportunity cost of producing capital goods for the country is the number of consumer goods that were foregone. Alternatively, the organisation may decide to allocate its scarce resources to the production only of good X as represented by B. The result is now the opportunity cost of Y that could have been produced. This implies that an organisation should make a choice of what to produce and what not to produce. The end result is opportunity cost associated with choosing a certain course of action over another. The organisation or firm cannot benefit both. Opportunity cost is illustrated by the negative slope of the curve which indicates that more of one good can only be obtained by sacrificing the other good.
Ideally, organisations or even economies do not operate at the extremes but seek to strike a balance in the production of goods X and Y. The ideal however would be to produce outside curve AB but it is not possible due to scarce resources and organisational efficiencies. Increase in resources and or production efficiency may be a way to reach point D. Production at D can also be realised if there are changes in factor inputs, changes in population, discovery of new materials, changes in technology etc. An example would be a new technological invention resulting in a cheaper way of manufacturing certain goods or services. When the firm or organisation produces at point E or within the PPC, it implies that there is under utilisation of resources or there is inefficiency in the utilisation of resources hence measures have to be taken. On the same note, moving production of goods from E to the end of the curve AB means that resources are being fully utilised.
The PPC relates to us the concepts of scarcity, choice and opportunity cost. Points on and inside the PPC are achievable while those that are outside are not. The unattainable points thus reflect scarcity. Since the PPC comprises of a series of points along the curve, choice has to be made among alternative choices. The concept of opportunity cost is reflected by the negative slope of the PPC indicating the effect of increasing production of one good over another. Management therefore needs to make decisions on what to produce and what not to produce In addition, decisions must also be taken to come up the correct product combinations to facilitate the survival of the organization. The concepts of scarcity, opportunity cost and choice are thus critical concepts in decision making in economies.

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