The Economizing Problem--Scarcity Chapter 2

Objectives Define the economizing problem, incorporating the relationship between limited resources and unlimited wants Differentiate between full employment and full production Explain the concepts of allocative and productive efficiency and how they differ Construct a production possibility curve when given appropriate data Illustrate economic growth, unemployment & underemployment of resources, allocative and productive efficiency and increasing costs using a PPC. Differentiate between product and resource (factor) markets Define and identify the terms and concepts listed at the end of the chapter

The economizing problem: Scarcity society’s material wants are unlimited while resources are limited or scarce. Fundamental Fact: Unlimited Wants Economic wants are desires of people to use goods & services that provide utility, which means more satisfaction Products are sometimes classified as luxuries or necessities, but division is subjective Businesses and gov’t also have wants Over time, wants change and multiply

Fundamental fact: Scarce Resources Economic resources are limited relative to wants Economic resources are called the factors of production: land, labor, capital and entrepreneur

Efficiency Full production implies two types of efficiency ALLOCATIVE efficiency means that resources are used for producing the combination of goods and services most wanted by society PRODUCTIVE efficiency means that least costly production techniques are used to produce wanted goods and services Full production means producing the “right” goods (allocative efficiency) in the “right” way (productive efficiency)

**4 Factors of Production 1. land Must be natural & is limited

2. capital Must be used for production

3. labor The work force (human capital)

4. Entrepreneurs Risk takers in search of a new business

Phil Knight Nike Mark Cuban Broadcast.com Pierre Omidyar Ebay Chris DeWolfe & Tom Anderson My Space Mark Zuckerburg Facebook Warren Buffett--Berkshire Hathaway Sean Combs Bad Boy Records

Production Possibility Frontier or Curve See graph

Circular Flow See document manager or board