Economics is the study of how individuals, firms and governments use scarce resources that have alternative

uses to produce goods and services and how the goods and services are distributed. Economics is a Social Science that can be split into two main categories - Micro-economics and Macro-economics.

Micro-economics is concerned with the objectives and decisions of individual economic units like consumers, firms, government agencies etc.

On the other hand, macro-economics is concerned with the behaviour of the economy as a whole and consequently with aggregates like national income, the general price level, balance of payments etc. Macro- economcis is also concerned with how changes in these aggregates affect other aggregates.

Economics is considered a science for the simple reason that Economics uses the scientific method of analysis.

Economics like any other subject is concerned with developing theories to help explain and predict economic phenomena around us. In so doing, economics uses the scientific method as earlier mentioned and this scientific method consists of the following stages:

In the first phase of the scientific method of analysis in Economics, there is the observation of facts and definition of concepts. There is need to observe facts relating to whatever interests the economist e.g,saving, investment etc.

In the second step, a hypothesis (prediction) is constructed about human behaviour and which may be right or wrong. The hypothesis could be something like “more of a good is demanded at a lower price, everything being equal”.

In the third stage, a model is built describing the behaviour of economic variables or influencing factors involved in the initial hypothesis. For instance, the factors that influence demand as per the previous hypothesis.

In the fourth phase, the hypothesis is tested against empirical or real world evidence by the use of a model. An economic model is a simplified framework designed to illustrate complex processes and often but not always using mathematical techniques.

If in the final analysis, the hypothesis cannot be disproved, it becomes an accepted theory.

From the foregoing analysis, it follows that economics is a science and a social science for that matter because it follows the scientific method of analysis and is concerned with the behaviour of society from a given perspective.

A market economic system is one in which the production and distribution of goods and services is essentially carried out by the price system or the price mechanism. This is as opposed to a planned economic system in which the production and distribution of goods and services is essentially carried out by a central planning committee. These two main economic systems have their relative merits and demerits but emphasis in this essay shall obviously be on the merits of a planned economic system in order to justify the preference for a planned economic system.

Despite the advantages of market economic systems like greater efficiency resulting from competition and self­interest, consumer sovereignty and satisfaction of consumer choices, greater variety of goods and services, self-regulation through the functioning of the price system, flexibility, faster economic growth and higher

living standards, many economies still opt for the planned economic system because of its advantages. These advantages of the planned economic system include the following:

There is little or no consumer exploitation because production is generally void of profit motives.

In a planned economic system, there is greater stability of economic activities because of constant government intervention and hence no likelihood of monetary crises.

In a planned economy, there are fewer monopolies and consequently fewer ills of monopoly and hence a more equitable distribution of income.

There is a greater production of public and merit goods in a command economy given the absence of the profit motive. There is equally a minimal level of negative externalities for the same reason.

The absence of competition in a planned economy implies a more optimal allocation of resources.

Furthermore, if countries were to opt for market economies and not planned economies, they would or could face the following problems:

There could be excessive competition thus leading to a wastage of resources.

There could be the excessive production of demerit and harmful goods like hard drugs in so far as they are demanded and this would be done at the expense of basic products for the poor.

There would be a likelihood of instability in economic activities due to the lack of or very limited government regulation and resulting in costs like inflation and unemployment, exploitative monopolies, etc.

There would be great inequalities in the distribution of wealth and income as a result of self-interest and the profit motive.

There would be lots of negative externalities in terms of pollution, congestion etc., as individuals pursue their profit motives.

By way of conclusion, it can be said that if there is a preference for the planned economic system, this is as a result of its dominant advantages vis a vis the demerits of other systems.

a) What is meant by the basic economic problem of scarcity? (10 marks)

The basic economic problem of scarcity arises because human wants and needs are unlimited, whereas the resources available to satisfy these wants are limited or finite. This fundamental issue forces societies to make choices about how to allocate their scarce resources among competing uses. Scarcity implies that resources such as land, labor, capital, and entrepreneurship are insufficient to produce all the goods and services that people desire, leading to the necessity of prioritization and trade-offs.

In economic terms, scarcity necessitates the existence of opportunity costs—the value of the next best alternative foregone when making a decision. It underpins the entire economic system, influencing what to produce, how to produce, and for whom to produce. Without scarcity, economic questions would be irrelevant because resources would be abundant enough to meet all human wants effortlessly.

In summary, the basic economic problem of scarcity refers to the condition where resources are limited relative to human wants, compelling societies to make choices about resource allocation, resulting in the need for economic decision-making and prioritization.

b) Discuss whether economic growth solves the problem of scarcity. (15 marks)

Economic growth, defined as an increase in a country's output of goods and services over time, is often seen as a means to alleviate scarcity by expanding the availability of resources and goods. However, whether economic growth truly solves the fundamental problem of scarcity is subject to debate.

Discussion:

Arguments that economic growth can help solve scarcity:

1. Increased Resource Availability: Economic growth can lead to the discovery and development of new resources, technological advancements, and improvements in productivity, thereby increasing the total output of goods and services.

2. Enhanced Living Standards: Growth can improve living standards and reduce poverty, enabling more people to access essential goods and services.

3. Technological Progress: Innovations can make production more efficient, reducing the amount of scarce resources needed for certain goods, thus freeing resources for other uses.

Counterarguments and limitations:

1. Unlimited Wants: Despite growth, human wants continue to expand, often at a faster rate than growth, meaning scarcity persists in new forms.

2. Environmental Constraints: Economic growth can deplete natural resources and cause environmental degradation, which may ultimately exacerbate scarcity of vital ecological resources.

3. Finite Resources: Some resources are inherently finite, and technological progress cannot always replace or regenerate them, leading to persistent scarcity.

4. Distribution Issues: Growth does not necessarily ensure equitable distribution of resources; some populations may still face scarcity despite overall increases in output.

While economic growth can temporarily or locally reduce certain types of scarcity and improve material well-being, it does not fundamentally eliminate the problem of scarcity because human wants keep rising, and environmental and resource constraints remain. The core issue of unlimited wants versus limited resources continues to persist, making scarcity an inherent feature of economic life. Therefore, economic growth is a tool that can mitigate some aspects of scarcity but does not provide a complete solution.

Remark:
This discussion aligns with the perspectives highlighted in London 2007, emphasizing that the problem of scarcity remains ongoing because technological progress and economic growth tend to stimulate further wants, preventing the complete resolution of scarcity.

The tendency nowadays is for most countries to move away from planned to market economies. Explain why. (20 marks)

Historically, many countries, especially those in the USSR, Eastern Europe, and China, adopted planned or command economies, believing this system could accelerate industrialization and promote social equality. However, over time, the limitations of planned economies became apparent, prompting a shift toward market economies. This trend is driven by the advantages of market systems and the disadvantages inherent in planned economies.

1. Advantages of a Market Economy

• Efficiency in Resource Allocation:

  • Prices in a market economy are determined by supply and demand, guiding resources to where they are most valued.
  • This leads to optimal production and minimizes waste.

• Encourages Innovation and Entrepreneurship:

  • Profit motive motivates firms and individuals to innovate, improve products, and increase productivity.
  • Competitive markets foster technological progress.

• Consumer Sovereignty:

  • Consumers influence what is produced through their purchasing choices.
  • This ensures that goods and services match consumer preferences.

• Flexibility and Dynamic Response:

  • Market economies can adapt quickly to changing conditions, shocks, or innovations.

• Higher Economic Growth:

  • Competition and innovation promote economic expansion and higher standards of living.

2. Disadvantages of Planned Economies

• Inefficiency and Bureaucracy:

  • Central planning often results in misallocation of resources due to information asymmetry and bureaucratic delays.
  • Over-centralization can lead to waste and shortages.

• Lack of Incentives:

  • Absence of profit motive reduces motivation for innovation, efficiency, and hard work.
  • State enterprises may become complacent or inefficient.

• Inflexibility:

  • Planned economies are often slow to respond to changes in consumer preferences or technological advancements.

• Corruption and Lack of Competition:

  • Monopoly or state control can lead to corruption, complacency, and lack of innovation.

• Limited Consumer Choice:

  • Consumers have less influence over production, leading to potential dissatisfaction.

3. Reasons for the Shift from Planned to Market Economies

• Failure to Achieve Rapid Growth:

  • Many planned economies, like the USSR, struggled with stagnation, inefficiency, and failure to meet consumer needs.

• Technological and Economic Inefficiencies:

  • Central planning struggled to keep pace with technological progress and global competition.

• Global Trends and International Trade:

  • Countries recognized that integration into global markets required market-oriented reforms.

• Political Changes and Reforms:

  • The decline of communist regimes and the fall of the Soviet Union in the late 1980s and early 1990s accelerated the shift toward market economies.

• Desire for Improved Living Standards:

  • Market economies tend to deliver higher productivity, innovation, and improved standards of living.

• Experience of Success in Market-Oriented Countries:

  • Countries like South Korea and Taiwan demonstrated that market economies could achieve rapid industrialization and economic growth.

The move away from planned economies toward market-oriented systems is primarily motivated by the recognition that market economies are generally more efficient, innovative, and adaptable. While planned economies aimed to promote equality and rapid development, their inherent inefficiencies and inflexibility often hindered sustainable growth. The advantages of market economies—such as better resource allocation, incentives for innovation, consumer choice, and adaptability—have made them the preferred model in the modern global economy.

“A mixed economic system is a bridge between the free enterprise and planned economic systems.” Discuss. (20 marks)

A mixed economy combines elements of both free market (capitalist) and planned (socialist) systems. It seeks to harness the advantages of individual initiative and private enterprise while also allowing government intervention to address market failures and promote social welfare. Thus, it functions as a “bridge” or middle ground, balancing the roles of the private sector and the state.

1. Characteristics of a Free Enterprise (Market) System

• Private Ownership: Resources and means of production are owned privately.
• Profit Motive: Firms operate primarily to maximize profits.
• Minimal Government Intervention: The government’s role is limited to enforcing laws and protecting property rights.
• Price Mechanism: Prices are determined by supply and demand, guiding resource allocation efficiently.
• Consumer Sovereignty: Consumers influence what is produced through their purchasing choices.

2. Characteristics of a Planned (Command) Economy

• State Ownership: Resources and industries are owned and controlled by the government.
• Central Planning: The government plans what, how, and for whom to produce, aiming for equitable distribution and social welfare.
• Limited Role for Market Forces: Prices and production are set by authorities, not by market forces.
• Focus on Social Objectives: Emphasis on reducing inequality, providing public goods, and achieving economic stability.

3. How a Mixed Economy Serves as a Bridge

• Combination of Private and Public Ownership:

  • In a mixed economy, key industries may be owned or regulated by the government (e.g., healthcare, transportation), while others remain under private ownership.
  • This blending allows for private enterprise to operate freely within a framework of government regulation.

• Role of Government:

  • The government intervenes to correct market failures—such as externalities, monopolies, or public goods.
  • It also implements social policies—like welfare, education, and health services—aimed at promoting social equity.

• Market and Planning Coexistence:

  • Prices are generally determined by supply and demand but can be regulated to prevent inflation, monopolies, or ensure essential goods are affordable.
  • Economic planning is used selectively to guide investment and development, especially in strategic sectors.

• Flexibility and Adaptability:

  • A mixed system can adapt to changing economic circumstances more effectively than purely planned or free-market systems, combining efficiency with social objectives.

4. Advantages of a Mixed Economy

• Promotes economic efficiency through private enterprise.
• Ensures social justice and reduces inequality via government intervention.
• Provides public goods and services that the market may underprovide.
• Stabilizes the economy through fiscal and monetary policies.

5. Limitations

• Potential for government failure if intervention is excessive.
• Risk of excessive regulation stifling enterprise.
• Possible conflicts between private interests and social welfare.

A mixed economic system indeed acts as a “bridge” by integrating the strengths of both free enterprise and planned economies. It allows for private initiative and market efficiency while enabling government intervention to promote social justice, correct market failures, and provide public goods. This hybrid approach seeks to balance economic efficiency with social equity, making it a flexible and pragmatic model suited to modern economies.

a) Explain the principal features of a free market economy (10 marks)

A free market economy is an economic system where the allocation of resources and the pricing of goods and services are primarily determined by supply and demand, with minimal government intervention. The key features include:

1. Private Ownership of Resources: Individuals and firms own property and resources, making decisions about their use and allocation.

2. Price Mechanism: Prices are determined by the forces of supply and demand. They act as signals to producers and consumers, guiding resource allocation efficiently.

3. Limited Government Intervention: The government plays a minimal role, mainly to enforce laws, protect property rights, and maintain law and order.

4. Competition: Multiple producers and consumers operate freely, fostering competition that encourages innovation, efficiency, and lower prices.

5. Consumer Sovereignty: Consumers have the freedom to choose what to buy, influencing what is produced based on their preferences.

6. Profit Motive: Firms aim to maximize profits, which drives efficiency and innovation.

7. Flexibility and Adaptability: Prices adjust quickly to changes in supply and demand, allowing the economy to respond effectively to shocks.

Working of the Price Mechanism:
Prices act as signals; high prices indicate scarcity, prompting producers to supply more, while low prices signal surplus, leading to reduced production. Consumers respond to price changes by altering their demand, ensuring resources are allocated where they are most valued.

b) How does the exhaustion of an important natural resource, amidst technological improvements, affect the country's production possibilities curve? (15 marks)

Understanding the Production Possibilities Curve (PPC):
The PPC illustrates the maximum output combinations of two goods or services an economy can produce with its available resources and technology. It reflects trade-offs and opportunity costs.

Impact of Exhaustion of a Natural Resource:

• Shift of the PPC Inward: The depletion of a key natural resource reduces the available inputs for production, causing the PPC to shift inward, indicating a decrease in the maximum attainable output levels.
• Reduced Production Capacity: The economy cannot produce as much as before, leading to lower potential output, particularly for goods or services heavily dependent on the exhausted resource.
• Opportunity Cost of Resource Exhaustion: The loss of natural resources means that the country must forego some production of certain goods, which was previously possible, thereby reducing the overall productive capacity.

Impact of Improved Technology:

• Shift of the PPC Outward: Technological improvements increase efficiency, enabling the economy to produce more with the same resources, shifting the PPC outward.
• Counteracting Resource Exhaustion: If technological gains are significant, they can partially or fully offset the negative effects of resource depletion, maintaining or even expanding production capacity in certain sectors.

Combined Effect:

• The simultaneous occurrence of resource exhaustion and technological improvement creates a complex scenario:
  • The PPC may shift inward due to resource depletion, reflecting reduced capacity.
  • Technological progress may shift the PPC outward, indicating improved productivity.
  • The net effect depends on the relative magnitude of these changes; if technological gains are substantial, they might mitigate the effects of resource exhaustion, resulting in a less pronounced inward shift or even a net outward shift in the PPC.

The exhaustion of a vital natural resource generally causes the PPC to shift inward, indicating reduced potential output. However, technological improvements can offset this decline, either slowing the inward shift or enabling the economy to sustain higher levels of production despite resource depletion.

The Problem of Scarcity and the Role of Economics in Addressing It

1. Explanation of the Problem of Scarcity

Scarcity Defined:
Scarcity is a fundamental economic problem that arises because resources are limited or finite, whereas human wants and needs are virtually unlimited. This imbalance means that society cannot produce enough goods and services to satisfy all desires at once.

Meaning of Scarcity:
It implies that choices must be made about how to allocate scarce resources efficiently among competing uses. For example, land, labor, capital, and raw materials are limited, yet societies desire more goods, better healthcare, improved education, and environmental preservation. The challenge is deciding how to distribute these limited resources to meet various needs and wants.

Implication:
Because resources are finite, every choice involves an opportunity cost—the value of the next best alternative foregone. For example, choosing to build a new hospital might mean fewer resources for infrastructure development elsewhere.

2. Can Economics Solve the Problem of Scarcity?

Understanding the Role of Economics:
Economics is the study of how societies manage scarce resources to satisfy unlimited wants. It provides tools, theories, and frameworks to analyze choices, costs, benefits, and trade-offs involved in resource allocation.

How Economics Assists:

• Resource Allocation: Economics guides decision-makers through methods like market mechanisms, pricing, and planning to allocate resources in a way that maximizes societal welfare.
• Efficiency and Optimization: It offers models such as allocative efficiency, ensuring resources are used where they are most valued.
• Understanding Externalities: Economics helps identify external costs and benefits, enabling policies that internalize social costs, like pollution taxes.
• Trade-offs and Opportunity Costs: It emphasizes the importance of weighing alternatives, helping society make better-informed choices.

Limitations:

• Scarcity Is Inevitable: Economics cannot eliminate scarcity because it is rooted in the very nature of finite resources and infinite wants.
• Uncertainty and Information Gaps: Perfect solutions are hindered by imperfect information, unpredictable preferences, and external shocks.
• Distribution and Equity Issues: Economics can suggest efficient outcomes but does not inherently resolve issues of fairness or equitable distribution.

Conclusion:
While economics cannot solve the fundamental problem of scarcity—since it is an inherent feature of human existence—it provides essential tools and insights to manage scarcity more effectively. It enables societies to make better decisions, prioritize needs, and allocate resources in ways that maximize welfare.

3. Final Assessment

• Scarcity is an unchangeable reality; no economic theory or policy can eliminate it.
• Economics serves as a decision-making aid, helping individuals, firms, and governments choose among competing wants.
• The goal of economics is not to eradicate scarcity, but to maximize the efficient and equitable use of limited resources.

Scarcity is a fundamental problem arising from limited resources and unlimited human wants. Economics does not "solve" scarcity but provides the analytical tools to manage and allocate resources more effectively, helping society to make better choices in the face of this unavoidable constraint.

Opportunity Cost and Social Cost: Explanation and Impact on Government Decision to Develop a New Oil Field in Kribi

1. Opportunity Cost

Definition and Explanation:
Opportunity cost refers to the value of the next best alternative that is foregone when a decision is made. It is not just about monetary costs but also includes the benefits that could have been obtained from the alternative use of resources. For example, if the government allocates land and capital to develop an oil field in Kribi, the opportunity cost might be the benefits from investing that same land and capital into agriculture or tourism instead.

Example:
Suppose the government chooses to develop the oil field. The opportunity cost could be the potential income from tourism if the land were preserved as a national park, or the benefits from expanding agriculture in the region.

2. Social Cost

Definition and Explanation:
Social cost encompasses all the costs to society resulting from an economic activity, including both private costs (borne directly by the producer or consumer) and external costs (costs imposed on third parties or the environment). Externalities such as environmental pollution, health hazards, and loss of biodiversity are key components of social costs.

Example:
Developing the oil field might generate economic benefits such as revenue and employment, but it could also lead to environmental degradation, air and water pollution, and health problems among local communities. These negative effects are social costs because they impact society beyond the direct stakeholders involved in the oil extraction.

3. Impact on Government Decision-Making for Developing the Oil Field in Kribi

a. Considering Opportunity Cost:

• The government must evaluate whether developing the oil field maximizes national benefits. If resources (land, capital, labor) could generate higher returns elsewhere, such as in agriculture or renewable energy, then the opportunity cost of pursuing oil development is high.
• For example, if tourism in Kribi, with its beaches and natural scenery, could generate more sustainable revenue than oil extraction, the government might decide against developing the oil field to avoid foregone tourism benefits.

b. Considering Social Cost:

• The government should also account for externalities associated with oil development. If environmental degradation leads to long-term health costs, loss of biodiversity, or climate change impacts, these social costs could outweigh short-term economic gains.
• For instance, if oil spills or pollution threaten fisheries or local livelihoods, the social costs could be substantial, prompting the government to implement strict regulations or consider alternative development options.

c. Cost-Benefit Analysis:

• The decision involves weighing the economic benefits (such as increased revenue, employment, and energy security) against the opportunity costs and social costs.
• If the social costs are high and the opportunity costs indicate better alternative uses of resources, the government might opt to delay or forego oil development, or implement measures to mitigate environmental damage.

opportunity cost helps the government recognize what they forgo when choosing oil development over other possibilities like tourism or agriculture. Social cost ensures they consider wider societal impacts, especially environmental and health-related externalities. A thorough cost-benefit analysis incorporating these costs would lead to more sustainable and informed decisions regarding the development of the Kribi oil field.

Economic theory is usually developed to help explain economic happenings around us and so we get to talk of the concept of a production possibility frontier (PPF). A PPF shows the maximum combinations of two goods or services that an economy or on economic entity can produce at a given time with its available resources and technology. It is possible to have a PPF with increasing costs, decreasing costs or constant costs. This essay focuses on the most realistic option of a PPF which is that with increasing costs.

In order to derive a PPC with increasing costs, the following assumptions are made:

That an economy can produce only two goods- capital goods and consumer goods ;

That there is a fixed quantity and quality of resources our given period of time;

That there are increasing costs of production or that there are diminishing returns to production or that resources are not perfectly adaptable between different uses.

That technology is fixed.

On the basis of these assumptions, it is possible to envisage the following production possibility schedule and the resultant production possibilities curve.

Production possibilities.

Production possibilities curve

20 40 60 Consumer goods

Points A, B, C and D are points on the PPC while points E is within the PPC. Point F is out of the PPC. Point E can produced when resource are not fully or efficiently used while profit F cannot be produced at present.

A PPG can enable us explain the basic economic concepts of scarcity, choice and opportunity cost.

Scarcity means limited in supply. At a given time and with the resources and technology available, it is not possible to produce output combination F because of scarcity of economic resources as we see this product combination is out of the PPG.

Given that an economy cannot provide all of what it wants, it is bound to make choices. Making a choice means making a decision to take one thing out of some given possibilities. The economy can for instance chose to produce 70 capital goods and zero consumer goods or 50 capital goods and 30 consumer goods etc.

In the process of making a choice, there are opportunity costs. An opportunity cost is the cost of something in terms of the next best forgone alternative. For instance, to move from product combination B to product combination C entails an opportunity cost. Twenty 20 units of capital goods would have to be given up in order to produce 10 additional units of consumer goods. Twenty capital goods are thus the opportunity cost of 40 capital goods.

It is this seen that a PPG can be used to explain the basic economic concepts of scarcity, choice and opportunity cost and may equally be used to explain other concepts like economic growth etc.

A production possibilities frontier or curve (PPC) shows the possible combinations of goods that an economy or an economic entity like a firm or a plant can produce when all its resources are fully and efficiently utilized with its given level of technology. This concept is of prime importance in illustrating the basic economic

concepts of scarcity, choice, opportunity cost as well as the notion of economic growth .A careful explanation of the notion of a PPC with the relevant assumptions would enable us see why it is impossible for a country to increase the production of both capital goods and consumer goods once on its PPC as well as throwing lighten other related issues.

Consider a given country, say Lilyputia for which we proceed to develop its PPC. We further assume that:

The quantity and quality of economic resources available for use in Lilyputia during the year are fixed.

Two broad categories of goods are to be produced i.e capital goods and consumer goods.

Some resources are better adapted to the production of capital goods than to the production of consumer goods. (If we assume all resources are equally efficient or adapted in the production of both goods, then we would have a straight line PPC and not a concave shaped PCC as in this case).

Technology is fixed and does not advance during the year.

On the basis of the aforementioned assumptions, we can come up with the following production combinations for capital goods and consumer goods.

With the help of these production combinations, it is then possible to derive the following PPC by plotting the aforementioned product combinations as shown on

We now assume that this economy of Lilyputia is currently producing 40 units of capital goods and 300 units of consumer goods i.e point B. If the economy now

wants to increase the production of consumer goods to 500 units, it can only do so by reducing the production of capital goods to 20 units so as to produce 200 additional units of consumer goods. In other words, the opportunity cost in this case of producing 200 additional units of consumer goods is 20 units of capital goods. This is so for the simple reason that there is a limit to the amount of consumer goods and capital goods that can be produced at any given time period with available technology and resources etc. This means that more of a good can only be produced by reducing the potential output of the other good. In short, given the assumptions of a PPC as earlier outlined, it is impossible for Lilyputia or for any other country to increase the production of both capital goods and consumer goods at the same time when the country is already on its PPC.

We can further elucidate on the aforementioned point by assuming that Lilyputia is producing at point X which is NOT a point on its PPC but a point INSIDE its PPC. It then becomes possible to increase the production of both capital goods and consumer goods by moving to ANY point on its PPC and by either FULLY and EFFICIENTLY using its resources.

If again we consider another point like point Y which is NOT on Lilyputia’s PPC, it may be possible to produce more of capital goods and consumer goods if and only if there is an outward shift of the PCC. We then talk of economic growth which may have been brought about by say the discovery of additional resources, improved technology, etc.

By way of conclusion, we Can say that given the assumptions of a PPC, it is impossible to produce more of capital goods and consumer goods once on a PPC. If this were to be possible, then it would be a violation of the very concept of a PPC which concept illustrates:

(i)            Scarce resources i.e there is a limit to the amount of what we can produce at a given time with available resources and technology thus obliging us to make a choice;

(ii)            Opportunity costs i.e more of a given good can only be obtained by reducing the potential production of another goods.