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C h a p t e r
2 THE ECONOMIC
PROBLEM
output for a large decrease in DVD output, creating a relatively high opportunity cost reflected in the steep
slope of the PPF over this range of output. The opportunity cost of pizza production increases with the
quantity of pizza produced as the slope of the PPF becomes ever steeper. This effect creates the bowed out
effect (the concavity of the PPF function) and means that as more of a good is produced, the opportunity
cost of producing additional units increases.
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1. What is marginal cost? How is it measured?
Marginal cost is the opportunity cost of producing one more unit of a good or service. Along a PPF
marginal cost is reflected in the absolute value of the slope of the PPF. In particular, the magnitude of the
slope of the PPF is the marginal cost of a unit of the good measured along the x-axis. As the magnitude of
the slope changes moving along the PPF, the marginal cost changes.
2. What is marginal benefit? How is it measured?
The marginal benefit from a good or service is the benefit received from consuming one more unit of it. It
is measured by what an individual is willing to give up (or pay) for an additional that last unit.
3. How does the marginal benefit from a good change as the quantity produced of that good
increases?
As the more of a good is consumed, the marginal benefit received from each unit is smaller than the
marginal benefit received from the unit consumed immediately before it, and is larger than the marginal
benefit from the unit consumed immediately after it. This set of results is known as the principle of
decreasing marginal benefit and is often assumed by economists to be a common characteristic of an
individual’s preferences over most goods and services in the economy.
4. What is allocative efficiency and how does it relate to the production possibilities frontier?
Production efficiency occurs when production takes place at a point on the PPF. This indicates that all
available resources are being used for production and society cannot produce additional units of one good
or service without reducing the output of another good or service. Allocative efficiency, however, requires
that the goods and services produced are those that provide the greatest possible benefit. This definition
means that the allocative efficient level of output is the point on the PPF (and hence is a production
efficient point) for which the marginal benefit equals the marginal cost.
5. What conditions must be satisfied if resources are used efficiently?
Resources are used efficiently when more of one good or service cannot be produced without producing
less of some of another good or service that is valued more highly. This is known as allocative efficiency and
it occurs when: 1) production efficiency is achieved, and 2) the marginal benefit received from the last unit
produced is equal to the marginal cost of producing the last unit.
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1. What generates economic growth?
The two key factors that generate economic growth are technological change and capital accumulation.
Technological change allows an economy to produce more with the same amount of limited resources,
Capital accumulation, the growth of capital resources including human capital, means that an economy
has increased its available resources for production.
2. How does economic growth influence the production possibilities frontier?
Economic growth shifts the PPF outward. Persistent outward shifts in the production possibility
frontier—economic growth—are caused by the accumulation of resources, such as more capital equipment
or by the development of new technology.
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1. What gives a person a comparative advantage?
A person has a comparative advantage in an activity if that person can perform the activity at a lower
opportunity cost than anyone else, If the person gives up the least amount of other goods and services to
produce a particular good or service, the person has the lowest opportunity cost of producing that good or
service.
2. Distinguish between comparative advantage and absolute advantage.
A person has a comparative advantage in producing a good when he or she has the lowest opportunity cost
of producing it. Comparative advantage is based on the output forgone. A person has an absolute advantage in
production when he or she uses the least amount of time or resources to produce one unit of that particular
good or service. Absolute advantage is a measure of productivity in using inputs.
3. Why do people specialize and trade?
People can compare consumption possibilities from producing all goods and services through self-
sufficiency against specializing in producing only those goods and services that reflect their comparative
advantage and trading their output with others who do the same. People can then see that the
consumption possibilities from specialization and trade are greater than under self-sufficiency. Therefore it
is in people’s own self-interest to specialize. It was Adam Smith who first pointed out in the Wealth of
Nations how individuals voluntarily engage in this socially beneficial and cooperative activity through the
pursuit of their own self-interest, rather than for society’s best interests.
4. What are the gains from specialization and trade?
From society’s standpoint, the total output of goods and services available for consumption is greater with
specialization and trade. From an individual’s perspective, each person who specializes enjoys being able to
consume a larger bundle of goods and services after trading with others who have also specialized, than
would otherwise be possible under self-sufficiency. These increases are the gains from specialization and
trade for society and for individuals.
5. What is the source of the gains from trade?
As long as people have different opportunity costs of producing goods or services, total output is higher
with specialization and trade than if each individual produced goods and services under self-sufficiency.
This increase in output is the gains from trade.
Just before dinner there was a commotion close to our tents, and
we found that one of the soldiers of our escort had tried to stab
Walda Mariam,[82] the assistant of Johannes, with whom he had
come to meet us at Gallabat. We immediately disarmed the soldier,
and then discovered that both had been to a village near by to get
tedj, and were drunk. So we disarmed the deputy-interpreter also,
and I was sorry to see him in disgrace, for he had always been
willing, hard-working, and cheery on the journey. We placed the
soldier under arrest, and warned him that if he were found brawling
again he would be flogged. Then, order being restored, we went to
dinner.
In this part of Abyssinia the mountain air sharpened our appetites,
and I must own that we were sturdy trenchermen. Each would tackle
a whole guinea-fowl or duck for lunch, and be ready for another in
the evening. We had puddings “of sorts” too, and yet, like Oliver
Twist, we “asked for more.”
On the morning of January 26, the quarrelsome soldier, now
sober and crestfallen, was brought up for a formal reprimand. He
was told that his case would be reported at Gallabat, and that he
would be punished there according to military law. Then his arms
were returned to him. Walda Mariam also attended, looking sheepish
and sorry for himself, and his weapons too were restored to him.
After this the medicine-chest was unloaded, and I redeemed my
promise to patients. One family—father, mother, and two children—
had come from a distance to consult me at Korata. They had arrived
too late, and had followed us to Woreb. The father was suffering
from necrosis of the lower jaw, and I had to draw three teeth for him.
The mother had come to hear what instructions were given about the
children—a little boy and a little girl. They were suffering from
strumous, tuberculous glands of the neck. I had as “hospital orderly”
a soldier who understood Arabic and Amharic, and could therefore
put me en rapport with my patients. After an examination of the
children, I concluded that the right thing would be an operation with
the knife. I told this to the woman, and the soldier interpreted what I
said word for word. As soon as the little girl heard the word “knife,”
she gave vent to the loudest, most piercing scream that she could
utter, and fairly flew from the spot. The noise created a sensation
among the Habashes and boys, who seemed to think that I was
killing a patient. It would have been awkward in any case to operate
in camp, and on this occasion I had no opportunity. Nothing short of
brute force would have brought the little girl back, and I think the
word “knife” conveyed to her mother and brother the notion of the
butcher’s rather than the surgeon’s implement.
My companions had mounted their mules and started on an
exploring journey, intending to select a good site as a camping-
ground close to the river. But by the time they returned they had
decided that our present position could not be bettered, as the river-
banks were low ground covered with papyrus swamps, and any
halting-place there would be very unhealthy. They had also found
that all the points from which they wished to make observations were
easy of access from the spot that we had chosen.
I had a rather sharp touch of fever in the afternoon, and was
obliged to give up work and lie down. These attacks are unavoidable
at times in that country. They make one feel extremely helpless and
depressed while they last, but soon yield to quinine and a little rest.
The next morning, January 26, I was better, but felt shaky when I
got on my mule and started with my companions. At a short distance
from the camp we left the animals in a hollow and climbed a steep
hill about five hundred feet high. It was covered with tall grass and
the soil was stony, so that I was soon out of breath. But when we
reached the summit a lovely scene lay in front of us. The Blue Nile,
winding away from its outlet in the lake, was bright in the sunshine.
The green banks on either side were delightful to the eyes, and here
and there in the stream were little islands, vivid in colour, where the
papyrus grew to a height of twelve or fourteen feet. There were
many dark dots in the water—heads of hippopotami, which swarm in
these upper reaches of the Blue Nile. Mountains rise above the river-
valley on both sides, and the stream curves among the spurs at their
base, till it is lost to sight. The view from the high land is far-reaching,
and the clearness of the air makes even distant outlines very distinct.
I can scarcely imagine a scene at once so charming, tranquil, and
impressive as this prospect of lake, river, and mountains. It is
impossible to convey in words the effect of the simple, strong
colouring—the blue lake, the flashing stream, the verdurous islands
and swamps, the cloudless, lustrous sky, the chromes and grays and
purplish shadows among the ridges that sweep upward and recede
from the valley in splendid lines. And upon the peace of this
landscape at least, the personally conducted tripper will not intrude
just yet.
I noticed several cataracts, but none of any great extent. The
water in these rapids was rushing over and between rocks, and they
must be ugly places when the lake rises. In other parts the river was
smooth and still. In one pool we counted eighteen hippos taking the
air, just their snouts being out of water.
Almost at once we set to work and piled up a heap of stones, and
fixed in the centre of it a long pole as a landmark. This was a
straight, thin branch which we cut from a tree near at hand. After this
we set up three more “cairns” on selected spots, and then
descended to the low ground, where the mules were waiting. I
remained in the valley, for exertion soon tires one out after the fever.
My friends climbed other hills and erected more landmarks before
returning to lunch. In the meanwhile I tried my luck at angling in the
river, but caught nothing, and soon gave up the attempt, and lounged
under a palm-tree, reading.
My companions started on their mules after lunch to continue their
survey, and I went back to camp and was glad to be idle. The day’s
work was ended before evening, and I believe we were the first
Britishers who had five-o’clock tea beside the head waters of the
Blue Nile.
Next morning (January 27) I had instructions to set up a stone-
heap on a little hill about four miles from camp. I made my way to it
direct through a tangle of jungle-growths, and from the summit
obtained the photograph of the source of the river at the point of
outflow from the lake which forms the frontispiece of this book. I
believe this to be the only photo of the place in existence.
I descended the hill, and walked along the riverbank towards the
place where we had arranged to lunch. The soil was boggy, covered
in some parts by reed-grass and in others by jungle-growths. Hippo
spoor was everywhere. This tract is not well-wooded; there are a few
palms, and some scattered trees of other kinds, chiefly mimosas.
The bed of the river is hard rock, and the water was clear and
drinkable. The depth varied very greatly, from a few inches in the
rapids to some six metres in the pools. I saw the stream at its lowest.
Watermarks showed clearly that in flood time it rises sixteen to
eighteen feet above this level.
When I reached the place where we were to lunch, I saw a big
herd of hippos basking on the surface of the river. Crawley and I
walked towards them, and when they saw us, they sank, leaving only
their snouts visible. These offered an interesting target for rifle-fire,
and for awhile the hippos watched our practice with unconcern. Then
a shot told—there was a “general post”—and not a sign of the huge
beasts remained in sight.
After this I took my rod and tried for a fish in a pool below a rapid.
While I was standing there, I saw a large white eagle, a splendid
fellow, which had been watching me fishing, swoop from the branch
of a high tree. He circled twice above me, and then pounced upon a
young duck, that was hiding under a ledge in the river-bed, and bore
it off. The parent birds were close at hand, and I heard their loud,
frightened, and indignant cackling. I do not think wild duck are
plentiful hereabouts. No doubt they are harried by these eagles and
have to find safer breeding-places. We saw only a very few. I landed
a plump fish of the perch tribe, which weighed about four pounds. He
showed no fight, but came tamely into shallow water, where the boy
who was with me picked him up. My friends came late into camp
after a hard day’s work upon their survey.
The high ground beside the head waters of the Blue Nile is
pleasant and healthy and could support a large population. The
maximum temperature in the day, when we were there, was about
eighty-five degrees. Usually a cool, exhilarating breeze was blowing,
and we did not feel the heat disagreeably. If this place were more
easily accessible, it would be a perfect pleasure-resort and a most
valuable sanatorium for residents in the Soudan.
The event of January 28, was the appearance of potatoes at
table. I had often gazed at this unvarying factor in one’s diet with
indifference if not slightingly, and had wondered why the things were
served so constantly at European tables. It was not till we missed the
daily luxury that we appreciated it. The roast fowl was another bird
with this accompaniment. These were the only potatoes that we saw
in Abyssinia; they were very small. The cook had discovered them in
a remote hamlet. I can offer no explanation of their presence in that
place. He purchased a sackful for one salt and an empty lime-juice
bottle, and returned to camp in triumph, shouting at the top of his
voice that he had found “batatas” at last. Perhaps as he failed to
discover any more, the expedition denuded the country of its whole
stock.
CHAPTER X
Insects are an annoying pest in this part of the lake side. Hosts of
mosquitoes and small beetles of a peculiar species appeared on the
flat ground at sunset, and swarmed throughout the neighbourhood
for an hour afterwards. The beetles settled upon us in throngs, and
crawled into our noses and ears and under our clothes, and we
could not even crush them on account of the unendurable smell
which their bodies then gave forth. When the first hour after sundown