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ECON 210
Prepared by Linda Habibi
LO 1_Basic Econ Concepts
ECON 210: MICROECONOMICS
Learning Outcome 1: Basic Economic Concepts
What is Economics? Nobel Prize Laureate Paul Samuelson's definition is as follows:
 “Economics is the study of how societies use scarce resources to produce valuable commodities
and distribute them among different people.”
Microeconomics and Macroeconomics
 Microeconomics
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
 Macroeconomics
____________________________________________________________________________________
____________________________________________________________________________________
_________________________________________________________________
Positive versus Normative Economics
 Positive Economics –
______________________________________________________________________________
______________________________________________________________________________
 Normative Economics –
______________________________________________________________________________
______________________________________________________________________________
Exercise: Identify which of the following newspaper statements is normative and which is positive.
Arabianbusiness.com
Thursday, 28 August 2008
Dubai World posted profits of $287 million for first half of 2008.
Arabianbusiness.com
Friday, 29 August 2008
The dirham must be depegged immediately," said Khalaf Al-Habtoor, chairman of conglomerate Al-Habtoor Group,
quoted UAE daily Emirates Business 24/7. "The implications of the dollar peg have really begun to affect business and
markets."
http://www.arabianbusiness.com/505874-depeg-immediately-urge-uae-businesses
Friday, 29 August 2008
The UAE is among four states in the GCC - including Saudi Arabia, Qatar and Bahrain - that are maintaining dollar
pegs until they negotiate a single currency as early as 2010.
http://www.arabianbusiness.com/516145-uae-fx-committee-recommends-sticking-with-dlr-peg
The Economic Problem
Exercise: Compare the two pictures that your teacher shows you.
1. Which picture shows people living in a developed country?
2. Which picture shows people living in a developing (less developed) country?
3. What needs do the two groups of people have in common? _____________________________
_____________________________________________________________________________
4. Which group will not be able to satisfy all their needs? _________________________________
_____________________________________________________________________________
5. What do you think are the wants of people living in a developed country? _______________
_____________________________________________________________________________
6. What do you think are the wants of people living in a developing country? _______________
____________________________________________________________________________
7. Why can’t the wants of either group or people be satisfied?
___________________________________________________________________________
8. What do you think are the main differences between needs and wants? ___________________
____________________________________________________________________________
The fundamental economic problem facing individuals and societies is that resources are ______
(scarce/unlimited) but wants are
(scarce/unlimited)
Economics: is the study of how societies use their scarce or limited resources to satisfy their peoples’
unlimited wants as fully as possible.
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ECON 210
Prepared by Linda Habibi
LO 1_Basic Econ Concepts
The Three Fundamental Questions
Exercise: Tropical Trouble
Divide into groups of three or four people. Imagine that you are part of the crew of a cargo ship. After
weeks at sea, there is a violent storm that forces your ship on to the rocks and a group of you are
shipwrecked on a deserted island. You save what you can from the ship but most of your supplies are lost
in the storm.
The next day you examine your available resources. You realize that the wreck of the ship provides metal
and wood, and the natural vegetation of the uninhabited island provides a valuable source of food.
In your group discuss and provide answers to the following questions:
1. What is the main economic problem facing your group of survivors? __________________
2.
Decide the best way of using the resources available to you by answering the following questions:
What will we produce? ________________________________________________________
How will we produce the goods? ________________________________________________
Who will receive the goods? ______________________________________________
The problem of unlimited wants and limited economic resources forces each society to make three basic
choices, to answer the "three fundamental questions" of economics which are:
1)
What goods and services will we produce and in what quantities?
2)
How will these goods and services be produced?
3)
Who will receive the goods and services?
Four Factors of Production
Factors of Production are resources or inputs used by firms in their production processes in order to
produce goods and services used either for final consumption (consumer goods) or for use in further
production (capital goods). They are classified into the following four broad categories called the
Factors of Production:
1) Land: consists of the geographical surface area plus anything it contains. Land’s reward
(payment) is _____.
Examples:
2) Labor: consists of the human and mental time and effort spent in production process.
Labor’s reward is ______.
Examples:
3) Capital: (also called real capital) is the durable (man-made) goods used to produce other goods
and services. Capital’s reward is ________.
Examples:
4) Entrepreneurship (Enterprise): is the individual(s) who take the economic risk of a business
and organize the other factors of production. Enterprise’s reward is _______.
Examples:
The Production Process: Fill in the following to show the production process.
Factors of
Production
______ 
_______ 
Production
Process

_______________
________
________ 
4
ECON 210
Prepared by Linda Habibi
LO 1_Basic Econ Concepts
Exercise: The workings of a market economy
Omar Basamah has twenty people working in his clothing factory in Lebanon. He owns a piece of land, a
factory and has ten machines. Omar wants to make as much profit as possible. Presently he uses his
scarce resources to produce woolen sports jackets.
Which factors of production is Omar using in his factory? __________________________________
The most recent fashion among young people is leather jackets. Omar begins to notice his sales and profit
are falling. Omar decides that he can make more money if he switches his scarce resources to the
production of leather jackets in order to meet the market demand.
How do businesses in a market economy decide what to produce? ___________
There are two methods that Omar can use to make leather jackets. For the first method, Omar needs only
10 of his workers and 5 machines. Each leather jacket will cost $30 to produce. For the second method,
Omar needs to use all 20 workers and 8 machines. Each leather jacket will cost $40 to produce.
Which method will Omar use? _________ Why? _____________________ What is the main goal
of businesses in a market economy? _________________________
How do businesses in a market economy decide how to produce goods and services? ___________
Omar notices his profits have increased and are even more than when he was producing woolen sports
jackets. The fashion conscious young people who can afford to pay for the more expensive leather
jackets are satisfying their wants.
In a market economy who receives the goods and services that businesses produce? ___________
Economic Systems: The Circular-Flow of Income Model
We can represent the operation of a capitalist economy using a circular-flow of income diagram. This
diagram is a way of showing how the economy works to circulate output, spending and incomes in an
economy over a period of time so that wants are satisfied. In our simple model of the economy, we will
assume there is only a private sector (no government) consisting of households and firms.
Fill in the following blanks. Then use the information to fill in the flows in the Circular Flow of Income
diagram below.
1) Households own the resources (factors of production), _________, _________, _________ and
__________. These resources are channeled into firms. In the following diagram fill in the box
that shows factors of production.
2) In return for their factors of production, households receive income. Income received by labor is
_______. Income received by land is _________. Income received by capital is ______. Income
received by enterprise is _________. In the following diagram fill in the box that shows income.
3) Firms produce the goods and services that households buy. In the following diagram fill in the box
that shows goods and services.
4) Households use their income to buy goods and services produced by firms. The income
households spend on firms’ output is known as consumption expenditure (given the symbol C). .
In the following diagram fill in the box that shows goods and services.
5) Label the flows that show where goods and services are bought and sold the “Product Market”.
6) Label the flows that show where factors of production are bought and sold the “Factor Market”.
(6)___________________ MARKET
(1)
(2)
FIRMS
HOUSEHOLDS
(3)
(4)
(7) ___________________ MARKET
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ECON 210
Prepared by Linda Habibi
LO 1_Basic Econ Concepts
Exercise: Now let’s add government and foreign trade to the circular flow of income diagram.
When we add government and foreign trade to the diagram, we have leakages (money that goes out
of the system) and we have injections (money that comes into the system.
Study the following Circular Flow diagram and then use the diagram to answer the questions:

Households consume a portion of their income and they _________ a portion of their income which represents a
___________ (leakage/injection) .

Producers can borrow some of the savings of households and use it as ________which is a(n) _____________
(leakage/injection).

Households pay part of their income to the government in the form of _______ which is a(n) _____________
(leakage/injection).

Government uses the taxes as a part of their government spending which is a(n) _____________ (leakage/injection).

Households use some of their income to buy _______from foreigners (foreign countries) which is a(n)
_____________ (leakage/injection).

Foreigners buy ___________from the economy which is a(n) _____________ (leakage/injection).
Leakages from the Circular Flow of Income are _____________, __________________ and ___________________.
Injections into the Circular Flow of Income are _____________, ________________ and _______________.
Choice and Opportunity Cost
Exercise: Scarce resources have alternative uses
Below is a list of resources. See how many alternative uses you can find for them, that is, see how many
different goods and services they can help to produce.
1. An area of land
2. An egg
3. A shovel
People, countries and businesses must choose how scarce resources are to be used; they must choose
which goods and services to make because they cannot make everything they want.
Exercise: The nest best thing and Opportunity Cost
Choosing between goods and services involves a very special cost. Imagine you have just bought the list
of items below. List one other thing that you could have bought instead.
What I have just bought
What I could have bought instead
Compact disc (Price - 50 AED)
A car (Price – 210,000 AED)
In the second column you listed your second best choices, or your best alternatives, to the objects in
column one. The real cost of choosing one thing and not another is known as opportunity cost.
The opportunity cost (next best alternative given up) of the compact disc is _____________.
The opportunity cost (next best alternative given up) of a car is ______________.
Why can’t we buy everything we want? Which resource is scarce? ______________________________
Opportunity cost arises not only when we buy things, but also when we choose one activity over
another.
The opportunity cost (next best alternative given up) of my attending HCT is _____________.
Why can’t we do everything we want? What is scarce? ______________________________
Opportunity cost is the next best alternative (choice) you must give up when making an
economic decision.
Production Possibilities Curves (PPC)
We can illustrate the concept of opportunity cost with a simple graph called a production possibilities
curve (PPC) or a production possibilities frontier (PPF).
A production possibilities curve shows the combinations of goods and services that an economy can
produce using all its resources fully.
We will assume that an economy can produce only two goods.
The following table shows the production possibilities for Euro Land who can produce either cars or
mobile phones in the following combinations using its resources fully.
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ECON 210
Prepared by Linda Habibi
LO 1_Basic Econ Concepts
Production Possibilities showing constant opportunity cost
EURO LAND'S PRODUCTION POSSIBILITIES
ITEM
A
B
C
CARS (000)
MOBILE PHONES (000)
16
0
12
12
8
24
D
4
36
E
0
48

As we move from production possibility A to B, Euro Land gains ____ mobile phones but loses
____ cars. Therefore the opportunity cost of 12,000 mobile phones is _____ cars.

As we move from production possibility B to C, Euro Land gains ____ mobile phones but loses
____ cars. Therefore the opportunity cost of 12,000 mobile phones is _____ cars.

As we move from production possibility C to D, Euro Land gains ____ mobile phones but loses
____ cars. Therefore the opportunity cost of 12,000 mobile phones is _____ cars.

As we move from production possibility D to E, Euro Land gains ____ mobile phones but loses
____ cars. Therefore the opportunity cost of 12,000 mobile phones is _____ cars.
What is the opportunity cost in each of the above movements from one production possibility to the next?
_________________________________________________________
Therefore, we say the opportunity cost is _______ (constant/increasing/decreasing).
In the case of constant opportunity cost, resources are equally efficient and hence can be efficiently
allocated to the production of either good.
Draw the PPC curve below for Euro Land below putting Mobile Phones on the y-axis and Cars on the xaxis and label it PPC. Is your curve a straight line or a curved line? _____________
A straight-line production possibilities curve shows constant opportunity cost.
A curved production possibilities curve (PPC) shows increasing opportunity cost:
Let’s look at another example. Japan can produce either capital goods or consumer goods as shown in the
following production possibilities table when it uses its resources fully.
Capital goods are all man-made resources used to produce other goods and services.
Consumer goods are goods and services used by the final consumer.
Increasing opportunity cost
Japan’s PRODUCTION POSSIBILITIES
ITEM
A
B
C
0
500
CAPITAL GOODS (000)
CONSUMER GOODS(000)
1
475
2
425
D
3
325
E
4
175
F
5
0

As we move from production possibility A to B, Japan gains ____ capital goods but loses ____
consumer goods. Therefore the opportunity cost of __________ capital goods is _____ consumer
goods.

As we move from production possibility B to C, Japan gains ____ capital goods but loses ____
consumer goods. Therefore the opportunity cost of __________ capital goods is _____ consumer
goods.

As we move from production possibility C to D, Japan gains ____ capital goods but loses ____
consumer goods. Therefore the opportunity cost of __________ capital goods is _____ consumer
goods.

As we move from production possibility D to E, Japan gains ____ capital goods but loses ____
consumer goods. Therefore the opportunity cost of __________ capital goods is _____ consumer
goods.

As we move from production possibility E to F, Japan gains ____ capital goods but loses ____
consumer goods. Therefore the opportunity cost of __________ capital goods is _____ consumer
goods.
What is happening to the opportunity cost in each of the above movements from one production
possibility to the next? (increasing/ decreasing /remains constant) ________________________
In the case of increasing opportunity cost, resources are NOT equally efficient and hence can be
efficiently allocated to the production of either good.
In the real world, society’s resources are usually better suited for the production of certain goods and
services than for others; therefore, the PPC is bowed (curved) outwards from the origin. Hence our
previous assumption that resources are equally efficient and hence can be efficiently allocated
(distributed) to the production of either good is not true in the real world.
10
ECON 210
Prepared by Linda Habibi
LO 1_Basic Econ Concepts
Japan’s production possibilities curve illustrates an important principle known as the law of increasing
costs: as more of a good is produced, its opportunity cost will increase which is shown on a PPC graph by
a PPC bowed (curved) out from the origin.
Draw the PPC curve for Japan in the following box putting Consumer goods on the y-axis and Capital
goods on the x-axis and label it PPC1.
Graph the curve and label it PPC1. Make sure to use the correct scale and correctly label the axes.
Use the above table and graph for Japan to answer the following questions.
1. Assume Japan decides to produce 1,000 capital goods and 400,000 consumer goods. Draw a
point on your graph to represent this production combination and label it “U”. What is the
problem with this point?
______________________________________________________________________________
2. Assume Japan moves from point “U” to producing 1,000 capital good and 475,000 consumer
goods. In order to get 75,000 more consumer goods, how many capital goods did Japan have to
give up? ______ Therefore we can conclude that there is NO opportunity cost when we move
from a point inside the PPC to a point on the PPC.
3. Assume Japan wishes to produce 3,000 capital goods and 500,000 consumer goods. Draw a point
on your graph to represent this production combination and label it “I”. What is the problem with
this point?
________________________________________________________________________
Based on our answers to the previous questions, we can make the following conclusions about the PPC:



Points on the PPC are points of ________ (efficient/inefficient) production which means that we
are getting as much output as possible from a given amount of inputs or resources. These points
indicate full-employment of resources. Moving from one point on the PPC to another point on
the PPC involves an opportunity cost.
Points inside the PPC are ________ (efficient/inefficient) production points because more output
can be achieved of one product without giving up any of the other product. Therefore moving
from a point inside the PPC to a point on the PPC does NOT have an opportunity cost. These
points show under-employment or unemployment of resources.
All points in and on the PPC are possible, however, points outside the boundary are
________(possible/)impossible.
Economic Growth
Points outside the PPC can become possible in the future through economic growth.
Economic Growth is an increase in a country’s ability to produce goods and services at full employment.
A shift outwards in a country’s PPF shows economic growth.
Let’s assume Japan gives its workforce more training so they can now produce more of both capital goods
and consumer goods. Japan’s production possibilities have now increased as shown in the table below:
Japan’s PRODUCTION POSSIBILITIES
ITEM
A
B
C
0
600
CAPITAL GOODS (000)
CONSUMER GOODS(000)
2
575
4
525
D
E
F
6
425
8
275
10
0
Use the information in the above table and draw a new curve on the graph you drew for Japan in the
above example. Label it PPC2.
An increase in production capacity is described as economic growth and is shown by shifting the
production possibilities curve to the right.
A society can achieve Economic Growth in the future in any of the following ways:
1.
2.
3.
3.
5.
6.
Improving the quality of resources. For example ____________________________.
Increasing the quantity of resources. For example
_______________________________.
Using more technology which will cause productivity to _____ (increase/decrease).
Increasing number of women in the work force. Note: This is NOT the same thing as
putting the unemployed to work, which is only a movement from inside
the PPF to a point on the PPF.
More R & D (Research and Development).
Producing more _____ (capital/consumer) goods today than________
(capital/consumer) goods. However, this means that the economy is giving up
________ (present/future) consumption for ______ (present/future) consumption.
12
ECON 210
Prepared by Linda Habibi
LO 1_Basic Econ Concepts
Benefits of Trade
Trade between nations allows nations to acquire combinations of resources that are greater than they can
produce. Trade does NOT shift out the PPC.
Review Problems
1. A country can produce either cars and/or computers. The countries PPC is given by the production
possibilities in the following table:
Production
Possibilities
A
Cars - x axis
Computers - y axis
16
0
B
12
16
C
8
28
D
4
36
E
0
40
a) Graph the PPC next to the schedule (table) shown above. Graph cars along the x- axis and computers
along the y-axis. Label this curve “PPC1”. Make sure to label all points (A to E) on the curve.
b) Why do resources have to be moved from the production of cars to the production of computers as we
move from one point to the next point along the PPC? Is there an opportunity cost as we move from one
point to another point along the PPC?
c) If the economy is operating at point C, what is the opportunity cost of producing 4 more computers?
The opportunity cost of 4 more computers is ______ cars.
d) If the economy is operating at point E, what is the opportunity cost of producing 4 more cars?
The opportunity cost of 4 more cars is ______ computers.
e) What happens to the opportunity cost of cars in terms of oil as you have moved from point C to B to A?
The opportunity cost ______ (increases/decreases/remains constant)
f) In the long run, if this economy provides computer training to workers who produce cars and computers,
what effect will this have on the PPC? The PPC will ______ (shift inwards/shift outwards/not change)
because the economy will experience ____________ growth. Redraw the PPC to show what happens.
2. Draw a correctly labeled circular flow diagram of an economy. Make sure to include the various markets,
flows and sectors. What are the leakages? What are the injections?
14
ECON 210
Prepared by Linda Habibi
LO 1_Basic Econ Concepts
Exercise: Applying your Knowledge and Understanding:
Reference: http://www.bized.co.uk/educators/16-19/economics/micro/activity/econintro.htm
The Health Service
Image: Should NHS money be spent on funding more operations, or should it go on training and employing more
GPs? By Zarko Kecman
A recurring theme of manifesto commitments made by the Labour Government in
both 2001 and 2005 was the improvement of the health service. The problems
facing the National Health Service (NHS) have been huge: under-investment, poor
pay, inability to recruit and retain the right staff, endless competing demands on
resources, the developments in technology and treatment and numerous crises
have all contributed to the problem. Solving it is not going to be quick or easy but
does highlight the central issue in economics - that of resource allocation and
choice.
The Chancellor has raised taxes (primarily through raising National Insurance) to
pay for massive investment in the NHS. The NHS budget for 2005-6 is £76.38
billion, which accounts for 18% of total government spending, and 6.95% of total
GDP. Despite these massive funds, problems still exist: waiting times for operations
are stubbornly refusing to fall to the level the government would like; recruitment
of new staff - especially doctors and specialist nursing staff - takes time and is not
necessarily going to hit targets set; arguments continue over where NHS funds
would be most appropriately spent - on preventative medicine, on more primary
healthcare (GPs) on major health problems such as cancer and heart trouble - or on
more mundane, but nevertheless debilitating conditions, such as hip replacement
operations.
The government therefore has to convince voters that this extra spending will
eventually lead to an improvement in the service. Many in the UK would be willing
to pay higher taxes if it could be proved that the extra spending would lead to a
better service. However, the evidence is not so clear-cut. Suggestions therefore
have been made about alternative methods of funding the NHS.
One such system is a social insurance fund. With this system, employers and
employees would have to pay a contribution from their salary into one of a number
of competing schemes. Such schemes would be dedicated to providing the best
possible use of funds for health care. The problem with such schemes is that it
would increase business costs - possibly reducing employment!
Another system could involve greater use of private health policies. Responsibility
for this would be in the hands of the individual to ensure they had enough
insurance cover to pay for any medical bills and treatment. This type of system is
more common in the USA but there are many who criticise such a system. It
invariably means some people who need the treatment cannot afford to pay health
insurance; others may take a chance and decide they do not need insurance only to
find themselves landed with huge debts if they do need treatment!
The problem in the UK, however, is quite different to that in a country such as
Tanzania in Africa. Tanzania is a poor country: it has a population of 35 million and
has a national income of around £5.5 billion per year! The poor healthcare facilities
have a significant impact on its ability to create wealth to improve its situation.
Lack of preventative medicine means more people get sick from diseases such as
malaria, typhoid and so on. This means they are unable to work, which means they
do not earn enough money and so the government has a lack of funds through
taxes to invest in the health service, which means... you get the picture! In
Tanzania, significant effects can be observed through very simple treatments rehydration salts, anti-malaria netting and so on - which could, if the government
of Tanzania had the funds, make a huge difference to the lives of the people and to
the general health and wealth creation capacities of the population.
The text above is typical of the sort of article available in newspapers and
magazines such as 'The Economist', 'Newsweek' and so on. You will gain a great
deal from reading all manner of relevant articles in your studies - but the secret is
to read it like an economist!!
Exercise: When reading the text
1. Look up any new vocabulary words.
2. Apply the following concepts:
a. The fundamental economic questions.
b. Choice and Opportunity costs
c. Positive and normative economics
d. Production Possibility Curves
e. Wants and needs
16
ECON 210
Prepared by Linda Habibi
LO 1_Basic Econ Concepts
Exercise: Applying your Knowledge and Understanding:
Reference: http://www.bized.co.uk/educators/16-19/economics/micro/activity/econintro.htm
The London Olympic Bid - Money Well Spent?
http://www.bized.co.uk/current/mind/2004_5/221104.htm
The News
Image Copyright: Tamas Szafko, stock.xchng
The team for the London Olympic bid in 2012 flew to Lausanne, Switzerland on November 14th 2004 to hand in a 600
page bid document to the International Olympic Committee (IOC). The document details the technical aspects of the
bid, which all the short-listed cities in the process must submit. The other cities are Madrid, Moscow, New York and
Paris.
The IOC will now go through the documents and will be further informed on the respective bids by visits to each city
to put the plans into further context. The IOC will then meet to vote for the winning city in July 2005. The IOC
consists of 128 members, and delegates will be visiting London to view the plans further from 16th to 19th February
2005.
One of the key factors in the success of the Games bid will be the extent to which the public support it. There have
been complaints that London is again the centre of an attempt to host a major sporting event - other cities such as
Birmingham and Manchester have attempted to bid for having national sporting contests and facilities in their cities
but feel they have been overlooked. Manchester held the very successful Commonwealth Games in 2002 but
Birmingham lost out in its attempt to build the national stadium to replace Wembley. The fact that London is being
used is important in the eyes of the world according to bid officials. The capital is a big draw and it was felt that bids
centred on other parts of the UK would not have as high a chance of success.
London is intending to build a new stadium for the main athletics events and will also make extensive use of existing
world-renowned facilities to host other sports. Lords Cricket Ground would host archery, Wimbledon the tennis, the
new Wembley Stadium the soccer and the Millennium Dome the gymnastics. Other sports would be held in and
around London's parks and the new Olympic village is planned to be built in Stratford to the east of London.
Image: A view of the proposed Olympic Park in east London. Copyright: Reproduced with kind permission of London
2012.
Public support therefore is going to be a major factor in generating sufficient momentum to persuade the IOC that not
only could London finance and host the games successfully but that it would be a project embraced and welcomed by
people throughout the UK. Evidence suggests that support is growing but that public enthusiasm lags behind that of
Madrid and Paris.
Part of the reason for the contrasting enthusiasm maybe the traditional 'British reserve' and cynicism for such
projects but it could also be due to the fears over the cost of staging the bid and hosting the Games. There is no
doubting that Britain can host large scale successful sporting events - the public enthusiasm for the Commonwealth
Games was widely praised but that also took time to capture the imagination.
The cost however is something that does concern people. The bill for the Olympics in Athens in the summer of 2004
has been estimated at more than double the original budgeted target. The Greek finance minister has reported that
the cost will amount to €9 billion or £6.3 billion. He also estimates that the final bill will be much higher given that the
cost of developing the infrastructure for the Games has not yet been settled.
Most Games it seems have suffered from cost pressures; the cost of the 2000 Games in Sydney was budgeted at £1
billion but went over budget and as far back as Montreal in Canada in 1976, the dreams of the Mayor of Montreal ,
Jean Drapeau, have left a legacy of a stadium that has been costly to maintain and which is still costing Montreal
taxpayers money! Drapeau claimed in January 1973 that the Montreal Olympics would be self-financing and that it
would even make a profit!
Are budget and construction schedule overruns inevitable in large-scale projects? © iStock.com
The budget for staging the Games in London has been set at around £2.4 billion, significantly less than the cost of
staging the games in Athens. The organisers point to the numerous benefits that the Games will bring to the UK as a
whole - but there again, every bidding committee is likely to make such claims!
We have find some way of attaching relative values to the different decisions that could be made. The cost for the
Games is estimated at £2.375 billion. What else could £2.375 billion buy?


A new hospital in Manchester - a so-called super hospital - was estimated to have cost £400 million in 2001.
The cost of building a new primary school in Worcestershire was estimated at £1.5 million, the capital cost of
a new secondary school in Wales, £13 million.

The average cost of constructing one mile of dual three-lane motorway in 1998 was estimated at £17.1
million.
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ECON 210
Prepared by Linda Habibi
LO 1_Basic Econ Concepts
Using such information we can look at the 'cost' of staging the Games as follows:

We could build nearly 6 new 'super hospitals'.

We could build 158 new primary schools around the country or 18 new secondary schools.

We could construct 140 miles of new motorway.
Question:
What important economic concept would you apply to this article? Explain.