2. 1 Limits, Alternatives, and Choices

3. BUT LIMITED OR SCARCE RESOURCES! SOCIETY HAS UNLIMITED WANTS...

4. Individual’s Economizing Problem Limited Income Unlimited Wants Tradeoffs Choice

5. 65432106543210 0 2 4 6 8 10 12 DVDs $20 Books $10 12 10 8 6 4 2 0 2 4 6 8 10 12 14 $120 Budget Income = $120 P dvd = $20 = 6 Income = $120 P b = $10 = 12 Attainable Unattainable Quantity of Books Quantity of DVDs

6. Society’s Economizing Problem Scarce Resources Resource: –Land –Labor –Capital –Entrepreneurial Ability Factors of Production

7. LAND SCARCE RESOURCES ECONOMIC RESOURCES

8. LAND CAPITAL SCARCE RESOURCES ECONOMIC RESOURCES

9. SCARCE RESOURCES ECONOMIC RESOURCES Notes... FINANCIAL CAPITAL REAL CAPITAL

10. LAND CAPITAL LABOR SCARCE RESOURCES ECONOMIC RESOURCES

11. LAND CAPITAL LABOR ENTREPRENEUR SCARCE RESOURCES ECONOMIC RESOURCES Factors of Production

12. RESOURCE PAYMENTS RENT INTEREST WAGES PROFIT LAND CAPITAL LABOR ENTREPRENEUR

13. Production Possibilities Model 1- Full Employment 2- Fixed Resources 3- Fixed Technology 4- Two Goods

14. A Consumer Good PIZZA PRODUCTION POSSIBILITIES

15. Robots And a Capital Good

16. Using all resources, to get some pizza, we must give up some robots! We can only produce 10,000 Robots or 400,000 Pizzas PRODUCTION POSSIBILITIES

17. PIZZA 0 1 2 3 4 (in hundred thousands) ROBOTS 10 9 7 4 0 (in thousands) PRODUCTION POSSIBILITIES

18. PIZZA01234 (in hundred thousands) ROBOTS109740 (in thousands) Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES

19. PIZZA01234 (in hundred thousands) ROBOTS109740 (in thousands) Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES

20. PIZZA01234 (in hundred thousands) ROBOTS109740 (in thousands) Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES

21. PIZZA01234 (in hundred thousands) ROBOTS109740 (in thousands) Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES

22. PIZZA01234 (in hundred thousands) ROBOTS109740 (in thousands) Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES

23. PIZZA01234 (in hundred thousands) ROBOTS109740 (in thousands) Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES

24. A full-employment, full-production economy must sacrifice some of product X to obtain more of product Y. PRODUCTION POSSIBILITIES

25. Q Q Robots (thousands) Pizzas (hundred thousands) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 A B C D E W Attainable but Inefficient Unattainable Attainable & Efficient PRODUCTION POSSIBILITIES Z

26. Q Q Robots (thousands) Pizzas (hundred thousands) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 A B C D E W Attainable but Inefficient Unattainable Attainable & Efficient LAW OF INCREASING OPPORTUNITY COSTS The amount of other products that must be sacrificed to obtain 1 unit of a specific product is called the opportunity cost of that good.

27. Q Q Robots (thousands) Pizzas (hundred thousands) 1413121110 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 1 2 3 4 5 6 7 8 A B C D E W Attainable but Inefficient Unattainable Attainable & Efficient PRODUCTION POSSIBILITIES A graph of the production possibilities curve will be CONCAVE Economic resources are not completely adapt- able to other uses.

28. Q Q Robots (thousands) Pizzas (hundred thousands) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 U Unemployment & Underemployment Shown by Point U More of either or both is possible PRODUCTION POSSIBILITIES

29. Q Q Robots (thousands) Pizzas (hundred thousands) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 U Unemployment & Underemployment Shown by Point U More of either or both is possible PRODUCTION POSSIBILITIES Notes... Economic Growth 1 – Increase in resource supplies 2 – Better resource quality 3 – Technological advances

30. Economic Growth –Increasing Resource Supplies –Increasing Resource Quality –Technological Advances

31. Pizzas Industrial Robots Attainable 0 1 2 3 4 5 6 7 8 9 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Unattainable A B C D E Economic Growth Now Attainable A’ B’ C’ D’ E’ Production Possibilities Curve

32. Pizzas Industrial Robots Under or Unemployment 0 1 2 3 4 5 6 7 8 9 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Unattainable A’ B’ C’ D’ E’ Production Possibilities Curve U

33. Key Terms economics opportunity cost microeconomics positive economicspositive economics normative economicsnormative economics economizing problemeconomizing problem budget line factors of productionfactors of production consumer goods capital goods production possibilities curveproduction possibilities curve law of increasing opportunity costslaw of increasing opportunity costs economic growth economic resources land labor capital Entreprene- urial ability