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- unlimited wants + limited resources = scarcity choices to make: - want to produce - how to produce - from whom to produce
4 factors of production
- land: forests, minerals, oil, water, arable land ex) salt, flower, eggs, milk, tomato sauce, cheese, sausage - labor force: all physical & mental talents of individuals ex) chief baker, cook, delivery person, internet, mixing, washed his
hands, prepared, cooks, delivered
telephone, computer, kitchen, sink, oven, cardboard box, car, monitor - entrepreneur: risk bearer, combines land, labor, and capital; create new
goods & services; the owner
- utility = satisfaction - marginal = additional - allocative = distribute - price: amount buyer/ consumer pays - cost: amount seller pays to produce good - Investment: money spent by business to improve their production - goods: physical objects that satisfy needs & wants consumer goods: created for direct consumption (ex: pizza) capital goods: created for indirect consumption (ex: oven) - services: actions/ activities that one person performs of another (teacher) - Law of Diminishing Marginal Utility consumption increases & utility decrease !1
- scarcity occurs at all times, for all goods - shortages occur when producers will/cannot offer goods/services at current
prices
is temporary
Accountants vs Economics
- accountants look at only EXPLICIT COSTS explicit costs: traditional out of pocket costs of decision making - going to Disneyland - Economists look at explicit costs & implicit costs implicit costs: opposite costs as for some time & for some income
Constant Opportunity Cost 8 - using same resources 6 - *never curved in* 4 2 0 Increasing Opportunity Cost
" "
Pizza
Calzone
The Production Possibilities
- Only 2 goods can be measured/produced - full employment of resources - fixed resources - fixed technology (at that moment) 14 14 Opportunity Cost 13 - A -> B: 2 Bikes 10.5
Bikes
9
7
5
3.5
- A -> B: 1 Bike - B -> C: 3/2 Bikes - B -> C: 7 Bikes - D -> B: 4 Computers - C -> D: 2 Bikes - D -> E: 5/2 Bikes - F -> C: 0 :) - A -> D: productive efficiency
2
0 0 2 4 6 8 10
- Productive Efficiency:
Computers
products are being produced in least costly way any point ON production possibilities curve - Allocative efficiency: product being produced are ones most desired by society !2
Tuesday, August 20, 2013 optimal point on the Productive Possibilities Curve (PPC) depends on
desires of society
- 3 shifters of PPC: 1. change on quality/ resource 2. change in technology 3. change in trade - increase in population shifts PPC - focuses not on capital goods, better for you
rescue princess catching ghosts mario 3" luigi 1" (! ) (4) 1" 4" (3) (#)
Mario
Luigi
Value Axis
5 4 3 2 1 0 0 1 2 3 4 5 6 7
Category Axis
Steps:
first opposite goes over the numbers in the () next, choose the smallest number within the () - that will be comparative advantage for the extra curve, take the absolute advantage value and draw a
curve
- deals w/ aborigines/ -
indigenous people stagnant & lack of economic roles are established allocation of resources are based on cultural needs
- central authority mass business allowed to economic decisions make economic - capable of quick & decisions dramatic change - little flexibility to - consumer/producer make w/ small things no room for individuality
decision
Economic Goals 1. full employment: getting as many people to work as possible (4-6% unemployment) 2. Economic Growth: People want their wealth to grow 3. Price stability: inflation control 4. Economic Security: avoid recessions & depression (social security)
!3