The economy may not be able to produce all the swimming pools and child cares the Ministers request as there are constraints on the economy’s production. The economic problem of scarcity means that society’s capacity to produce goods is constrained by its limited resources (raw materials, machinery, labour services, capital goods and land). With use of the scenario, maximising production for a certain good (e.g swimming pools) places constraint on the economy to produce of other goods (e.g child care centres). As discussed, the ministers are looking to build six new swimming pools and twenty five child care centres, which in my opinion cannot be achieved due to the scarceness of resources within an economy’s capacity.
| Swimming Pools
| Child Care Centres
The opportunity cost of any activity is the highest-valued alternative that must be forgone to engage in that activity. As shown in the graph, the line is curved in order to reflect the increasing opportunity cost. If the PPC depicts a straight line, then each additional swimming pool produced would always involve the economy to sacrifice a constant quantity of child care centres. As previously stated it is not possible for the economy to produce 6 swimming pools and 25 child care centres at once. As each requirements require maximum usage of the economy’s resources. The PPC above shows all combinations that can be produced when its resources are allocated and employed efficiently. At point (A) we can see that 25 child care centres are produced with 0 swimming pools. In order to start producing swimming pools we need to shift some resources to the production of swimming pools as shown at (B). As we move further down to point (E) and (F) the amount of child care centres being produced are declining more substantially. This is because the economy is shifting...
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