Chapter 1.2, Problem 5R

To determine

The concept of trade-off, opportunity cost, production possibilities curve, and scarcity.

Explanation of Solution

According to the question an independent supermarket owner has a store and builds another in the neighboring town. But there is single owner to supervise both the stores. As the owner has limited time (resource), there will be scarcity of time and he has to make trade-off between the time to be given to store 1 and the time to be given to store 2. The opportunity cost of giving time to store 2 is the time he could give to store 1.

Now considering the production of good 1 as sale of store 1 and production of good 2 as sale of store 2 production possibility curve ( PPC ) is explained. In that case, if owner wants to increase the sale of store 1 he has to trade-off the sale of store 2 because he has limited time. PPC for this owner is given below:

  

The above given PPC shows sale of store 1 the on x-axis and sale of store 2 on the y-axis. If the owner wants to increase the sale of store 1 then he has to decrease the time given to store 2 as shown by the arrows.

Economics Concept Introduction

Introduction:

Trade-off: it refers to sacrificing one good or service in order to buy or produce another good or service. In other words, choosing one option over the other.

Scarcity: it is the problem that arises because of limited resources and unlimited wants for those resources.

Opportunity cost : it refers to the cost of the next best alternative forgone in order to do what have been chosen.

Production possibility curve: this curve shows the maximum possible combinations of two goods that can be produced using given resources.