Introduction to Economics: Scarcity, Choice, Opportunity Cost and the PPC
What the exam tests
This opening domain supplies the toolkit for every later topic: scarcity, choice, opportunity cost, the production possibility curve (PPC), positive versus normative statements, factors of production and the price mechanism. Paper 1 short answers often ask for definitions and PPC reasoning; Paper 2 may embed these ideas in an article.
Core rules
- Scarcity means resources are limited relative to wants, so every choice has an opportunity cost: the next-best alternative forgone, measured in real goods, not money.
- A PPC shows maximum output combinations. Points on the curve are productively efficient; inside are inefficient; outside are unattainable with current resources and technology.
- A movement along a PPC is reallocation; an outward shift comes from more or better factors, or improved technology. A pivot occurs when only one good's production capacity changes.
- Positive statements are testable; normative statements contain value judgements.
- In a market economy, prices ration, signal and provide incentives. Ceteris paribus is essential when isolating one change.
Worked example
An economy can produce at (80A, 0B) or (60A, 20B). The opportunity cost of the first 20B is 20A, or 1A per B. Moving from (60A, 20B) to (30A, 40B) costs 30A for 20B, or 1.5A per B. The rising opportunity cost explains the concave shape. If technology improves only B production, the B intercept moves outward while the A intercept stays fixed: the PPC pivots, rather than shifting parallel.
Traps
Do not call money the opportunity cost; it is the real alternative. Do not say a point outside the PPC is efficient after growth unless the curve has shifted. Avoid writing a normative claim as positive. A PPC shift is not the same as a movement along it.