Not So Scarce Resources

An article announced the discovery of significant mineral deposits in Afghanistan.

The United States has discovered nearly $1 trillion in untapped mineral deposits in Afghanistan, far
beyond any previously known reserves and enough to fundamentally alter the Afghan economy and
perhaps the Afghan war itself, according to senior American government officials.

The previously unknown deposits — including huge veins of iron, copper, cobalt, gold and critical
industrial metals like lithium — are so big and include so many minerals that are essential to modern
industry that Afghanistan could eventually be transformed into one of the most important mining centers
in the world, the United States officials believe.

Explanation to choose article:

This is a good opportunity to review the core economic concepts of scarce resources and production
possibilities and to justify for picking one article to cover both concept of Economics i.e. Micro and Macro.

Classical economics starts with the idea that resources which can make us happy, or make our nations
thrive are scarce – there are not enough resources to satisfy all of our needs. Going from here, classical
economics studies how people and nations make decisions on the allocation/use of those scarce
resources.

Afghanistan is a desperately poor nation – with a GDP of $800 per capita; compared to $46,400 for the
U.S. (Source: CIA World Factcbook). Much of this is due to decades of war and conflict within its borders.
It must allocate a small number of scarce resources to a variety of outputs. Just two of these many
outputs might be food production (necessary for health and a standard of living) and textiles (necessary
as an export good).

Before and After the Discovery of Mineral Deposits

We use a production possibility curve to illustrate the decisions on how to allocate scarce resources
between two outputs. Consider this sample graph.

We choose two outputs – food and textiles – and place one on each axis. The points where the curve
touches an axis represent the theoretical output if all scarce resources were devoted to that single
output. More realistically, the curve represents various combinations of outputs, based on allocating those
scarce resources between the two outputs. If the country operates on its production possibility curve, it is
using all of its resources efficiently. If it operates below the curve, some scarce resources are not being
used.

Now, all of a sudden, Afghanistan discovers that it has these vast reserves of precious minerals. The
possibilities in their economy will improve. The production possibility curve will shift out and to the right.
The challenge for this country hobbled by poor transportation networks, corruption in government, and
active hostilities within its borders is to reach this new production possibility.

Summarize in the context of Micro and Macro Economics:

Production possibility frontier

In economics, the production possibility frontier (also called transformation curve) is a graph that

represents the opportunity cost between any two items produced. It shows the maximum obtainable
amount of one commodity for any given amount of another commodity. The concept is used
in macroeconomics to show the production possibilities available to a nation or economy, and also
in microeconomics to show the options open to an individual firm. All points on a production possibilities
curve are points of maximum efficiency: resources are allocated such that it is impossible to increase the
output of one commodity without reducing the output of the other.

Production Possibilities Curve In Micro Economics:

In microeconomics, the PPF shows the options open to an individual, household, or firm in a two-good
world. By definition, each point on the curve is productively efficient, but, given the nature of  market
demand, some points will be more profitable than others. Equilibrium for a firm will be the combination of
outputs on the PPF that is most profitable. 
Production Possibilities Curve In Macro Economics:
From a macroeconomic perspective, the PPF illustrates the production possibilities available to a nation
or economy during a given period of time for broad categories of output. However, an economy may
achieve productive efficiency without necessarily being allocatively efficient. Market failure (such as
imperfect competition or externalities) and some institutions of social decision-making (such as
government and tradition) may lead to the wrong combination of goods being produced (hence the
wrong mix of resources being allocated between producing the two goods) compared to what consumers
would prefer, given what is feasible on the PPF.
A PPF shows all possible combinations of two goods that can be produced simultaneously during a given
period of time, ceteris paribus. Commonly, it takes the form of the curve on the right. For an economy to
increase the quantity of one good produced, production of the other good must be sacrificed. Here,
butter production must be sacrificed in order to produce more guns. PPFs represent how much of the
latter must be sacrificed for a given increase in production of the former.
Such a two-good world is a theoretical simplification, necessary for graphical analysis. If one good is of
primary interest, all others can be represented as a composite good. In addition, the model can be
generalised to the n-good case using mathematics.]
Assuming that the supply of the economy's factors of production does not increase, making more butter
requires that resources be redirected from making "guns" to making "butter". If production is efficient,
the economy can choose between combinations (i.e. points) on the PPF: B if guns are to be
prioritised, C if more butter is needed, D if an intermediate mix is required, and so forth.
Hence, all points on the curve are points of maximum productive efficiency (i.e., no more output can be
achieved from the given inputs); all points inside the frontier (such as A) are feasible but
productively inefficient; all points outside the curve (such as X) are unfeasible with the given resources
and thus unattainable in the short run. ] A point on the curve satisfies allocative efficiency, also
called Pareto efficiency, if, for given preferences and distribution of income, no movement along the
curve or redistribution of income there could raise utility of someone without lowering the utility of
someone else.

.
Summary:

Micro- economics is the study of individuals units. Whereas macro-economics is the study of the economy
as a whole. Micro-economics takes a given the total output for the economy as a whole, the distribution
of output, employment, total spending among the particular goods and services individual industries and
firms, the general price level and the relative price level or exchange ratio among individuals goods and
service. On the contrary macro-economics takes these are variable.

The modern theory of economics integrated the analysis of the behavior of individuals firm and the
behavior of the economics as a whole .Edward Shapiro observes,"Strictly speaking, there is only one
economics'. Macro-economics theory has a foundation in micro-economics theory has a foundation in
macro-economics theory".

Gardner Ackley support this view when he says, "The relationship between macro-economics and micro-
economics and theory individuals behavior is a two ways street. On the one hand, micro-economics
theory should provide the building blocks for our aggregates theories. But macro-economics may also
contribute to micro-economics understanding".

If we analysis macro-economics variable and their relationship, we must also allow for changes in micro-
economic variable may that affect the macro-economic variables. For example, if the labor is immobile,
total employment or total output may be less than they would be with mobility.
To determine the national material will being, we must considers both macro-economic and micro-
economics aspects. From the macro-economics viewpoint, the national material welfare will be greater if
the economy comes closer to the full utilization of its total resources. From the micro-economics point of
view material being will be greater if the economy comes to optimum allocation of its resources, taking as
given the degree of utilization. Clearly, the basic goal is same from both view point, the maximum
materials will being for the population as a whole. This goal can be attend only with both
full utilization and optimum allocation of available resources.

Micro-economics needs the help of Macro-economics for example, the sale of a firm not only depends
own it price but also the total purchasing power of the commodity. the value of profit or a firm depend
on aggregate demand, National income and general price level. Similarly, the help of micro-economics
is inevitable for macro-economics. For example, nation output and income are the sum the income of
income of millions of individuals and numerous firms respectably. Hence, the theory of the study of
individual units and aggregate are both equally important. To conclude in the words of P.A. Samuelson,
"There is really no opposition between micro-economics and macro-economics. Both are absolutely vital.
You are less than half-educated if you understand the one while being ignorant of the other.