The Economizing Problem - PowerPoint PPT Presentation

1 / 16
About This Presentation
Title:

The Economizing Problem

Description:

The Economizing Problem Chapter 2 – PowerPoint PPT presentation

Number of Views:9
Avg rating:3.0/5.0
Slides: 17
Provided by: HUMB184
Category:

less

Transcript and Presenter's Notes

Title: The Economizing Problem


1
The Economizing Problem
  • Chapter 2

2
Unlimited Wants
  • Economic wants are desires of people to use goods
    and services that provide utility, which means
    satisfaction
  • Products classified as luxuries or necessities
    (subjective)
  • Services goods satisfy wants
  • Over time, wants change as well as multiply

3
Scarce Resources
  • Resources are limited relative to wants
  • Resources also called factors of production (4)
  • Land (Natural Resources)
  • Labor
  • Capital or Investment Goods
  • Entrepreneurship or Innovation

4
Resource Payments
  • Rent Interest to suppliers of property
  • Wages Salaries to Labor
  • Profits to Entrepreneurs

5
Employment Efficiency
  • Economics requires full employment of available
    resources and full production
  • Full employment All resources are used
  • Full production Employed resources are
    providing maximum output

6
Full Production
  • Two types
  • 1. Allocative efficiency resources are used to
    provide the combination of goods services that
    are in the highest demand
  • 2. Productive efficiency production techniques
    that cost the least are used
  • The right goods (allocative) the right way
    (productive)

7
Production Possibilities
  • Just a way to express graphically or with a
    chart, table, etc. how resources are being
    employed or allocated
  • Assumptions
  • Available resources are fixed
  • Technology is constant
  • Only two products produced
  • Economy operating efficiently

8
Production Possibilities Contd
  • Points inside the curve (line) indicate
    unemployment or misallocation of resources
  • Points outside indicate unattainable levels
  • of production
  • Optimal use of resources is indicated by a
    point on the curve, exact point is determined by
    that particular society

9
Law of Increasing Opportunity Costs
  • The amount of a product sacrificed in order to
    produce a different product is called the
    opportunity cost
  • This cost will increase as the amount produced
    increases. Curve becomes steeper

10
Economic Rationale
  • Products are not always adaptable to alternative
    uses and may not be well suited for each other.
    This will increase cost and limit productivity
    and output.
  • The ultimate deciding factor in an economy is
    whether or not the cost outweighs the benefit or
    vice versa
  • MARGINAL COST vs MARGINAL BENEFIT

11
Unemployment, Growth, The Future
  • If resources increase or technology improves the
    entire curve will shift outward
  • The opposite is true if production decreases or
    unemployment is experienced
  • Present day investment decisions obviously will
    effect future production

12
Specialization Trade
  • Output can be increased beyond resource limits
    through specialization trade.
  • Adam Smith Absolute Advantage
  • David Ricardo Comparative Advantage
  • Same effect as increased resources or improved
    technology

13
Applications
  • How would the following effect the output of a
    given economy?
  • War
  • Technological innovation
  • Workplace discrimination
  • Recession

14
Market Economy
  • Private ownership of resources
  • Markets and prices determine economic activity
  • Freedom of choice
  • Limited role of the government
  • US version of capitalism has seen recently a
    large role played by the govt

15
Command Economy
  • Government controls resources
  • Economy centrally planned
  • North Korea, Cuba, Iran are examples

16
Circular Flow Model
Write a Comment
User Comments (0)
About PowerShow.com