2 - 1 The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model.

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2 - 1 The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model Production

2 - 2 The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model THE FOUNDATION OF ECONOMICS SOCIETY HAS VIRTUALLY UNLIMITED WANTS...

2 - 3 The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model BUT SCARCE PRODUCTIVE RESOURCES! SOCIETY HAS VIRTUALLY UNLIMITED WANTS... THE FOUNDATION OF ECONOMICS

2 - 4 The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model GOODS & SERVICES PROVIDE... UTILITY

2 - 5 The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model WANTS vs. NEEDS GOODS & SERVICES PROVIDE... UTILITY

2 - 6 The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model LAND SCARCE RESOURCES FACTORS OF PRODUCTION

2 - 7 The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model LAND CAPITAL SCARCE RESOURCES FACTORS OF PRODUCTION

2 - 8 The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model LAND CAPITAL SCARCE RESOURCES FACTORS OF PRODUCTION

2 - 9 The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model LAND CAPITAL LABOR SCARCE RESOURCES FACTORS OF PRODUCTION

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model LAND CAPITAL LABOR ENTREPRENEURS SCARCE RESOURCES FACTORS OF PRODUCTION

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model ENTREPRENEURS Make Business Decisions Create Something New Company Product Process Innovator Risk Bearer

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model RESOURCE PAYMENTS RENT INTEREST WAGES PROFIT & LOSS LAND CAPITAL LABOR ENTREPRENEUR

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model Resources & Scarcity Let’s illustrate this with a challenge. We need 4 teams. Group by seats.

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model Full Employment Full Production Productive Efficiency Allocative Efficiency ECONOMICS & EFFICIENCY

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model PRODUCTION POSSIBILITIES Assumes... Full Employment Productive Efficiency Fixed Resources Fixed Technology Two Goods for example...

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model PRODUCTION POSSIBILITIES for example... PIZZA A Consumer Good

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model PRODUCTION POSSIBILITIES for example... Robots A Capital Good

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model What if we could only produce... 10,000 Robots or 400,000 Pizzas PRODUCTION POSSIBILITIES

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model At any point in time, an economy must sacrifice some of product X to obtain more of product Y. PRODUCTION POSSIBILITIES Scarce resources means a limited output...

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model PIZZA01234 (in hundred thousands) ROBOTS (in thousands) in table form PRODUCTION POSSIBILITIES

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model PIZZA01234 (in hundred thousands) ROBOTS (in thousands) in table form graphical form Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model PIZZA01234 (in hundred thousands) ROBOTS (in thousands) in table form graphical form Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model PIZZA01234 (in hundred thousands) ROBOTS (in thousands) in table form graphical form Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model PIZZA01234 (in hundred thousands) ROBOTS (in thousands) in table form graphical form Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model PIZZA01234 (in hundred thousands) ROBOTS (in thousands) in table form graphical form Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model PIZZA01234 (in hundred thousands) ROBOTS (in thousands) in table form graphical form Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model Q Q Robots (thousands) Pizzas (hundred thousands) A B C D E W Attainable but Inefficient Unattainable Attainable & Efficient PRODUCTION POSSIBILITIES

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model Law of Increasing Opportunity Cost Economic resources are not completely adaptable to other uses To make more of X it costs more and more of Y This makes the Production Possibility Curve: –Bowed out from the origin –Concave

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model Q Q Robots (thousands) Pizzas (hundred thousands) U Unemployment & Underemployment Shown by Point U More of either or both is possible PRODUCTION POSSIBILITIES

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model Q Q Robots (thousands) Pizzas (hundred thousands) U Unemployment & Underemployment Shown by Point U More of either or both is possible PRODUCTION POSSIBILITIES Notes... Economic Growth The ability to produce a larger total output caused by...

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model Q Q Robots (thousands) Pizzas (hundred thousands) U Unemployment & Underemployment Shown by Point U More of either or both is possible PRODUCTION POSSIBILITIES Notes... Economic Growth 1 – More resources 2 – Better resources 3 – Technology 4 – Capital Goods

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model Economic Growth Q Q Robots (thousands) Pizzas (hundred thousands) A’ B’ C’ D’ E’ PRODUCTION POSSIBILITIES

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model Two Examples of Economic Growth ALTA - FAVORS Consumer Goods Capital Goods CURRENT CURVE FUTURE CURVE CONSUMPTION PRODUCTION POSSIBILITIES Alta

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model Two Examples of Economic Growth ALTA - FAVORS Consumer Goods ZORN - FAVORS Capital Goods Consumer Goods Capital Goods CURRENT CURVE FUTURE CURVE CONSUMPTION Consumer Goods Capital Goods FUTURE CURVE CONSUMPTION CURRENT CURVE PRODUCTION POSSIBILITIES Alta Zorn

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model Let’s work with Production Possibility Curves Open your packet and work on Activity 1-2.

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model P Q Marginal Benefit & Cost Quantity of Pizzas $ PRODUCTION POSSIBILITIES MC MB Allocative Efficiency: MB=MC MB=MC

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model ECONOMIC SYSTEMS Who owns the factors of production? Where are the economic decisions made?

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model ECONOMIC SYSTEMS THE MARKET SYSTEM Pure Capitalism Laissez-faire

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model ECONOMIC SYSTEMS THE MARKET SYSTEM Pure Capitalism Laissez-faire THE COMMAND SYSTEM Socialism Communism

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model Command System Soviet Union, Eastern Europe, China System was a failure –The coordination problem –The incentive problem

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model Market Versus Command

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model ECONOMIC SYSTEMS TRADITIONAL SYSTEM –Based on habits and/or customs –Tribal or indigenous

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model Market System

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model Market System

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model Economic Growth Full Employment Economic Efficiency Price-Level Stability Economic Freedom Equitable Distribution Economic Security Balance of Trade ECONOMIC GOALS

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model CIRCULAR FLOW MODEL BUSINESSES HOUSEHOLDS RESOURCE MARKET PRODUCT MARKET

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model BUSINESSES HOUSEHOLDS RESOURCE MARKET RESOURCESINPUTS PRODUCT MARKET CIRCULAR FLOW MODEL

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model BUSINESSES HOUSEHOLDS RESOURCE MARKET RESOURCESINPUTS $ COSTS$ INCOMES GOODS & SERVICES SERVICES PRODUCT MARKET CIRCULAR FLOW MODEL

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model BUSINESSES HOUSEHOLDS RESOURCE MARKET RESOURCESINPUTS $ COSTS$ INCOMES PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES CIRCULAR FLOW MODEL

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model BUSINESSES HOUSEHOLDS RESOURCE MARKET RESOURCESINPUTS $ COSTS$ INCOMES PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES $ CONSUMPTION$ REVENUE CIRCULAR FLOW MODEL

The Foundation of Economics Factors of Production Employment and Efficiency Production Possibility Curves Economic Systems The Circular Flow Model CIRCULAR FLOW MODEL BUSINESSES HOUSEHOLDS RESOURCE MARKET RESOURCESINPUTS $ COSTS$ INCOMES PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES $ CONSUMPTION$ REVENUE

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