Cambridge International as and a level Economics Ebook

developing economy
and 
0
–
b
represents the consumer 
goods required for the subsistence of the population.
Developing economy: 
one that has a low income per head.
KEY TERM
SELF-ASSESSMENT TASK 
1.7
Explain the choices facing decision-makers for the 
developing economy shown in 
Figure 1.11
. Discuss 
the diffi
culties they face and suggest possible 
solutions to their problems.
A hydroelectric power station in Africa
Scarcity and choice: 
The production possibility curve 
is a good representation of how choices can be made, 
ceteris paribus
. This simple model shows the eff ects of a 
decision to change the allocation of productive resources. 
The production possibility curve can also be used to show 
how change in the long run aff ects the resources that are 
available in an economy.
KEY CONCEPT LINK
Money: its functions and 
characteristics
In some respects 
money
is something that virtually 
all of us take for granted. We need it in order to carry 
out our daily lives, to pay for things such as riding on a 
Money: 
anything that is generally acceptable as a means 
of payment.
KEY TERM
Figure 1.10 
The choice between consumer goods and 
capital goods
Capital
consumption
Consumer goods
p
q
r
Capital goods
a
0
50
100
Figure 1.11 
Capital consumption in a developing economy
Capital consumption
b
0
Capital goods
a
Consumer goods
Subsistence
20
50
31
Chapter 1: Basic economic ideas and resource allocation

---

bus, purchasing a bottle of water or soft drink, buying 
lunch and so on. Handing over a few coins or a note 
is essential if we are to be able to buy what we want to 
satisfy our day-to-day
 
needs. Larger sums, of course, are 
required for things such as clothes, shoes, cars and even 
school fees.
Th
e money that we use for purchases is usually a 
national currency such as dollars, pounds or rupees (in 
Mauritius, India and Pakistan for example). For 17 EU 
member states the euro is their currency and, along with the 
US dollar, is widely accepted in global markets. Th
e coins 
and notes have little or no intrinsic value – their value stems 
directly from the fact that sellers have complete confi dence 
in the money given to them that prompts them to exchange 
it for the products we want to buy.
So what is money? A simple defi nition is that it is 
anything that is regularly used to buy goods and services. 
Normally, this is cash