Economic basics homework - Next

In an economy there are basic economic things that people need to think about. The main economic
problem is scarcity and the need to make choices. The idea behind scarcity is that we live in a world
where man’s wants are unlimited, yet we have limited resources to provide for these needs.
Therefore on occasions goods can become scarce and choices need to be made on what is produced
to meet demand. Because of the floods in Pakistan, cotton has become scarcer and so the price of
cotton has gone up by 45%. This means Next have had to make the choice of increasing their price of
cotton by as much as 8%.

Another thing that links with resources is the production possibility curve. This shows all the possible
combinations of production using s given level of resources. Next will have drawn a production
possibility curve between home ware good s and clothes and will show that because of the price of
cotton, that more home ware goods should be produced.

Another concept Next need to think about is opportunity cost – the sacrifice of the next best
alternative. In the article it says next saw real opportunities for growth ‘through its website and
catalogue and by opening new shops focussing on home ware and furniture’. This will mean that
Next will give up the opportunity on improving current stores, probably because there isn’t the need
for them to do so. Next will have looked at the opportunity cost and decided that this is the best way
to meet demand.

The factors of production are the things needed in the production process to make a product. These
are land, labour, enterprise and capital. For Next the labour is all the manual effort which includes all
the staff and managers. The capital will include all the machinery in the factory. The land will be all
the materials and land next shops sit on. Finally the enterprise will include the owners/ shareholders
as well as managers within the shop.

Positive statements are those which can be tested with reference to facts. An example could be
‘Cotton prices were 45% higher than this time last year’. A normative statement on the other hand is
an opinion such as the fact that Next doesn’t believe that there will be a double dip recession.

Next will also suffer from microeconomic problems, which are those that affect consumers and
firms, and macroeconomic problems, which are those that affect the whole economy. A
Macroeconomic problem is the recession which has affected the whole economy and is the reason
why many shops like next have low sales growth. A Microeconomic problem is that cotton prices
have fallen. This will only affect certain firms. This microeconomic problem will also affect the
production possibility curve and show how Next should produce goods.

By William Stokes (471 Words)