The Economizing Problem Chapter 2 The Economizing Problem

Two Fundamentals Two parts to the “economizing problem”: 1) Society’s (people and institutions) economic wants – insatiable! 2) Scarce economic resources (goods and services)

What Do We Want?? Stuff! “Economic wants” = necessities (food, shelter, clothing), luxuries (cars, mansions), and services (car repairs, washing machines, haircuts) Businesses want factories, warehouses, phone systems, etc. Government wants highways, schools, military equipment, etc.

Reminder: Resource categories include land, capital, labor, and entrepreneurial ability Reminder Part II: Capital in the business world means more tools, machinery, equipment, factories, storage, transportation, distribution, labor, etc. When businesses buy more capital ^^ they are investing

Production Possibilities

Production Possibilities Since we can’t have an unlimited output of goods and services, we make choices The more pizzas we have, the less robots we have

The curve is called the FRONTIER because it’s the limit of attainable output Points INSIDE the curve are inefficient because full employment and full production are being achieved. Points ON the curve means full employment and full production are being achieved

With technological advancements we can make MORE robots and MORE pizza (not equally) Economic growth The frontier has moved outwards+

The Free Market System We live in a free market system Also called….. Capitalism!

Capitalism Capitalism = the private ownership of resources and the use of markets and prices to coordinate economic activity Laissez-faire capitalism = also known as pure capitalism, the government would only be able to protect private property. The government would stay out of the economy. Do we have this type ^^ here in the US?

NO! Our government gets involved! Market System Government roles: Provides rules for economic activity Promotes economic growth/stability Provides certain goods and services

Free Market vs. Command System Capitalist People own property resources and make economic decisions Hard to make “pure” because our government steps in to help Command system: Socialist/communist Government owns most property resources A board of advisors makes economic decisions like distribution of resources Hard to make “pure” because hard to keep alive (except North Korea and Cuba)

Activity! Households Sell Sell Resources Businesses Sell Buy Resources On the back of your blank Circular Flowcharts, put these words/phrases: Money income Costs Consumption expenditures Revenue Resources Labor, land, capital, and entrepreneurial ability Goods and services (2x) Households Sell Sell Resources Businesses Sell Buy Resources Businesses Buy Buy Products Households Buy Sell Products