ECON 101 - Individual’s economizing problem PDF

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Summary

Limited Income, Unlimited Wants, Budget Line
Society’s Economizing Problem
Economizing Problem exists because Resources are Limited
Factors of Production?
Land- Natural sources= Coal, Minerals, Water, Wind Power, Forest (wood)
Labor- Human resource= ALL Physical + Ment...

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ECON 101 9 / 13 / 18 4. Individual’s economizing problem Limited Income  INITE Income will always be F Income: Comes from Wages / Salaries Gov’t: Pensions / Medicaid+Medicare Unlimited Wants Wants = Necessities: food, shelter, clothing Wants = Luxury items Be mindful of your Limited  Income- Budget Budget Line Schedule or curve that shows all the combinations of two products a consumer can purchase with the specific money income. Budget Line Clearly illustrates how much One good must be sacrificed to get more 5. Society’s Economizing Problem Economizing Problem exists because Resources  are Limited Resources: Refers to inputs used in the production of other goods and services. ● Factor of Production What are the Factors of Production? ● Land- Natural sources= Coal, Minerals, Water, Wind Power, Forest (wood) ● Labor- Human resource= ALL Physical + Mental talents used in the production of a good or service ● Capital- Anything that has been man-made and can be used to produce Goods + Services ○ Investment Good - NOT THE SAME AS $$ ○ Factory, storage, transportation, and Distribution facilities, Tools + machinery ● Entrepreneurs- Human resource= Different from Labor b/c they take initiatives to combine resources of labor and capital to produce a good or service ○ Risk-takers, Makes strategic business decisions

6. Production Possibilities Model Production Possibilities Model- Economic model that shows different combinations of goods and services that society can produce in Fully Employed economy (assuming there’s Fixed availability of.. 1. Supplies of resources 2. Fixed technology Production Possibilities Table

Law of Increasing Opportunity costs ● As more of a particular good is produced, Marginal Opportunity costs increase Production Possibilities Curve ● Has Concave shape: bowed out from the origin of the graph ● Economic Rationale The law of increasing opportunity costs is driven by the fact that economics resources are not completely adaptable to alternative uses. Consider Land. Some land is highly suitable for producing materials Optimal Allocation The economy must compare the Marginal Benefit to the Marginal costs of producing something. Marginal Cost = Marginal Benefit

Chapter 2- Economic Systems Economic Systems: Set of institutional arrangements and a coordinating mechanism to solve economic problems. Economic systems differ in how much Gov’t in involved in decision-making vs. how much the gov’t command and control is used to direct economic activity in that country (command system) Laissez-Faire capitalism  = Ideal economic system that Adam Smith envisioned in his book “The Wealth of Nations” ● NO need for GOV’T INTEREFENCE in markets b/c system is self-correcting  ● Role of Gov’t: Limited to providing legal environment for protection of private property and enforcement of private contracts The Invisible Hand Adam smith = “father of economics” ● Emphasized improtance of the role of self-interest in motivating Economic Activity ● Self-Interested behavior of Business + Supplies of resources = greatest amount of economic efficiency The Demise of Command Systems The Command System = Socialism / Communism...