1. The Economizing Problem--Scarcity
Chapter 2

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

3. 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

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

5. 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)

6. **4 Factors of Production
1. land
Must be
natural &
is limited

7. 2. capital
Must be used
for production

8. 3. labor
The work
force (human
capital)

9. 4. Entrepreneurs
Risk takers in
search of a
new business

10. 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

11. Production Possibility Frontier or Curve
See graph

12. Circular Flow
See document manager or board