The Economizing Problem Chapter Two 2/24/2019
The Foundation of Economics Economizing Problem Limited resources Unlimited wants Utility- usefulness or satisfaction 2/24/2019
Unlimited wants Wants extend over a wide range of products (necessities…luxuries). Wants change due to the introduction of new products. The objective of all economic activity is to fulfill wants. 2/24/2019
Resource categories Land Capital Labor Entrepreneurial ability Called the factors of production All natural resources or gifts of nature (land, forests, mineral and oil deposits, and water) Manufactured aids used in producing consumer goods & services… tools, machinery, equipment, factory, storage, transportation, and distribution facilities. Physical and mental efforts of individuals available to produce goods and services Takes initiative, risks, makes decisions, innovative 2/24/2019
Resource Payments Income from supplying resources: Land & capital- rental & interest income Labor- wages Entrepreneurial income- profits 2/24/2019
Full Employment Nobody should be out of a job if they are willing and able to work. 2/24/2019
Full Production Resources should be used to the maximum possible efficiency. Two types of efficiency: Productive Allocative 2) productive- production of any particular mix of goods & services in the least costly way. Allocative- production of that particular mix of goods & services most wanted by society. 2/24/2019
Production Possibilities Table Lists different combinations of two products that can be produced. Assumptions Full employment and productive efficiency Fixed resources Fixed technology Two goods 2/24/2019
Production Possibilities Table Pizza & Robots Production Alternatives Type of Product A B C D E Pizza 1 2 3 4 Robots 10 9 7 Do Figure 2.1 from p. 26 on board. 2/24/2019
Unemployment & Productive Inefficiency Unemployment or productive inefficiency falls inside the production possibilities curve. Growing Economy – Curve shifts outward Increase in resource supplies Advances in technology 2/24/2019
Opportunity Cost The amount of a product that must be given up to obtain 1 unit of a specific good. Law of Increasing Opportunity Cost The more of a product that is produced, the greater is its opportunity cost. 2/24/2019
Types of Economic Systems Market System Command System Traditional System Mixed System 2/24/2019
Market System Each participant acts in his/her own self-interest. Each individual or business seeks to maximize its satisfaction or profit. Private ownership of resources Prices to coordinate and direct economic activity 2/24/2019
Command System Also known as Socialism or Communism Government owns most property resources Economic decision making occurs through a central economic plan. 2/24/2019
Traditional System Relies on traditions and customs from the past Found in rural areas where families are self-sufficient 2/24/2019
Mixed System Blend of market, command, & traditional economic systems 2/24/2019
Circular Flow Model Two groups of decision makers (households & businesses) Two broad markets (resource market & product market) 2/24/2019