1. The Economizing Problem
Chapter Two
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2. The Foundation of Economics
Economizing Problem
Limited resources
Unlimited wants
Utility- usefulness or satisfaction
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3. 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.
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4. 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
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5. Resource Payments Income from supplying resources:
Land & capital- rental & interest income
Labor- wages
Entrepreneurial income- profits
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6. Full Employment
Nobody should be out of a job if they are willing and able to work.
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7. 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.
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8. 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
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9. 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.
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10. 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
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11. 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.
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12. Types of Economic Systems
Market System
Command System
Traditional System
Mixed System
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13. 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
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14. Command System Also known as Socialism or Communism
Government owns most property resources
Economic decision making occurs through a central economic plan.
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15. Traditional System Relies on traditions and customs from the past
Found in rural areas where families are self-sufficient
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16. Mixed System Blend of market, command, & traditional economic systems
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17. Circular Flow Model
Two groups of decision makers (households & businesses)
Two broad markets (resource market & product market)
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