Scarcity, marginal sacrifice and capital goods
| English | 中文 | Pinyin |
|---|---|---|
| economic good/ˌiːkəˈnɒmɪk ɡʊd/ | 经济物品 | jīng jì wù pǐn |
| capital good/ˈkæpɪtl ɡʊd/ | 资本品 | zī běn pǐn |
A decision you can investigate
- An island workshop can use resources for tools or household furniture. More tools reduce current furniture but may improve future production.
- Investment has a current opportunity cost even when it promises later growth.
Build the explanation
- Scarcity arises because resources are finite relative to wants. An economic good 经济物品 uses scarce resources and has opportunity cost; a free good is not scarce in the relevant context. Zero money price does not prove a good is free. Renewable resources can replenish under suitable use; non-renewable stocks do not regenerate on the relevant timescale.
- A PPF shows maximum feasible output combinations. On-frontier points are productively efficient; inside points leave capacity unused. A movement reallocates resources, while a shift changes potential. Capital goods produce other goods; consumer goods meet final consumption needs.
Work through the evidence
- The frontier (tools, furniture) is (0,36), (10,32), (20,24), (30,0). From 10 to 20 tools, furniture forgone is 8: marginal sacrifice over this interval = 8/10 = 0.8 furniture unit per tool. From 20 to 30, it is 24/10 = 2.4.
- The rising sacrifice reflects resources less suited to tools as specialization expands. Productive tools can raise future productivity and shift the PPF outward, but investment needs suitable skills and maintenance. (20,15) lies inside current capacity; moving to (20,24) improves use without shifting the frontier.
Which point is inefficient but feasible at 20 tools?
Current capacity allows 24 furniture units at that tool output.
Which can expand future potential?
Productive investment can add capacity if it can be used.
Every point on a PPF is necessarily the allocatively efficient output mix.
The frontier shows productive potential, not the socially preferred mix.
Test the limits
- Productive efficiency does not establish that the output mix best meets people’s preferences: allocative efficiency asks a different question. PPF data alone do not value the socially preferred mix.
- Renewable does not mean inexhaustible: use can exceed regeneration. Clean air can be scarce in a polluted location. Productive damage, resource loss or declining skills can shift capacity inward; more actual output need not mean higher potential.
Does an uncharged public service have no opportunity cost?
Resources used in provision can have alternative uses.
Apply and explain your answer
- What is the sacrifice per extra tool from 20 to 30 tools?
- 24 furniture units forgone
- 10 tools gained = 2.4 furniture units per tool.
Match the terms to their meanings.
Use each term for its stated economic relationship.
Use the terms precisely
- capital good 资本品: A produced good used to make other goods or services.
- economic good: A scarce good with an opportunity cost in its relevant context.
The frontier (tools, furniture) is (0,36), (10,32), (20,24), (30,0). From 10 to 20 tools, furniture forgone is 8: marginal sacrifice over this interval = 8/10 = 0.8 furniture unit per tool. From 20 to 30, it is 24/10 = 2.4. The rising sacrifice reflects resources less suited to tools as specialization expands. Productive tools can raise future productivity and shift the PPF outward, but investment needs suitable skills and maintenance. (20,15) lies inside current capacity; moving to (20,24) improves use without shifting the frontier.
Productive efficiency does not establish that the output mix best meets people’s preferences: allocative efficiency asks a different question. PPF data alone do not value the socially preferred mix. Renewable does not mean inexhaustible: use can exceed regeneration. Clean air can be scarce in a polluted location. Productive damage, resource loss or declining skills can shift capacity inward; more actual output need not mean higher potential.
Scarcity arises because resources are finite relative to wants. An economic good uses scarce resources and has opportunity cost; a free good is not scarce in the relevant context. Zero money price does not prove a good is free. Renewable resources can replenish under suitable use; non-renewable stocks do not regenerate on the relevant timescale.