1. The Economizing Problem
Chapter 2
The Economizing Problem

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

3. 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.

4. 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

5. Production Possibilities

6. 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

7. 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

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

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

10. 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?

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

12. 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)

13. 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