Economizing Problem
the choices necessitate because society's economic wants for goods and services are unlimited but the resources available to satisfy these wants are limited
Utility
pleasure or satisfaction
Economic Wants
desires of consumers to obtain and use various goods and services that provide utility
Objective of all Economic Activity
fulfill wants
Economic Resources
natural, human, and manufactured resources that go into the production of goods and services
-property resources: land, raw materials, and capital
-human resources: labor and entrepreneurial ability
4 Resource Categories
1) Land
2) Capital
3) Labor
4) Entrepreneurial Ability
Land
natural resources (gifts of nature), that are used inthe production process
ex) land, forests, mineral and oil deposits, and water
Capital (capital goods or investment goods)
manufactured aids used in producing consumer goods and services
ex) tools, machinery, equipment, factory, storage, transportation, and distribution facilities
Investment
process of producing and purchasing capital goods
Capital Goods
satisfy indirectly by aiding in the production of consumer goods
Consumer goods
satisfy directly
Labor
physical and mental talents of individuals available and usable in producing goods and services
ex) retail clerk, machinist, teacher
Entrepreneurial Ability
human resource that combines the other resources to produce a product, makes nonroutine decisions, innovates, and bears risks
Entrepreneur's Function
-takes initiative: combining resources of land, capital, and labor to produce a good or a service
-makes basic business policy decisions
-innovator- commercializes new products, production techniques, new forms of business organization
-risk bearer
Factors of Production
land, labor, capital, and entrepreneurial ability combined to produce goods and services
Rental Income
income from supply raw materials
Interest Income
income from supply capital equipment
Wages
income for labor
Profits
Entrepreneurial income
Full Employment
use of all available resources
Full Production
all employed resources should be used so that they provide the maximum posible satisfaction of our material wants
Undermployed
resources are not used because fail to realize full production
Productive Efficiency
production of any particular mix of goods and services in the least costly way
Allocative Efficiency
production of that particular mix of goods and sercvices most wanted by society
Production Possibilites Table
lists the different combinations of two products taht can be produced with a specific set of resources (and with full employement and productive efficiency)
Production Possibilities Curve
A curve showing hte different combinations of two goods or services that can be produced in a full-employment, full production, economy where supplies, resources, and technology are fixed
Opportunity Cost
amount of other products that must be forgone or sacrificed to obtain 1 unit of a specific good
Law of Increasing Opportunity Costs
the more of a product that is produced, the greater is its opportunity cost ("marginal" implied)
Allocative Efficiency
economy produce at the most valued, or optimal, point on the production possibilities curve
Economic Growth
the ability to produce a larger total output
result of
1) increase in resources
2) resource quality improved
3) technological advances
International Specialization
directing domestic resoures to output that a nation is highly efficient at producing
International Trade
exchange of these goods for produced abroad
Economic Systems
a particular set of institutional arangements and a coordinating mechanism
Market System (capitalism)
private ownership of resources and the use of markets and prices to coordinate and direct economic activity characterized
Markets
places where buyers and sellers come together
Pure Capitalism (laissez-faire)
governments role would be limited to protecting private property and establishing an environment appropriate to the opperation of the market system
Command System (socialism or communism)
government owns most property resources and economic decision making occurs through a central economic plan
Resource Market
place where resources or services of suppliers are bough and sold
Product Market
place where goods and services produced by businesses are bought at sold
Circular Flow Model
complex, interrelated web of decision making and economic activity involving business and households
Example of land resource
natural gas
Primary function of the entrepreneur is to
innovate
The law of increasing opportunity costs states that
if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of other goods to do soq
Allocative efficiciency is concerned with
producing the combinations of goods most desired by society
The two general types of economic systems that exist today are
market systems and command systems
Distinguishing feature of a market system
wide-spread private ownership of capital
Which of the following is a capital resource
a piece of software used by a firm
The basic difference betweeen consumer goods and capital goods is that
consumer goods satisfy wants directly while capital goods satisfy wants indirectly
A production possibilities curve shows
the maximum amounts oftwo goods that can be produced assuming the full and efficient use of available resources
Four factors of production are
land, labor, capital, and entrepreneurial ability
The optimal or allocatively efficient point on a production possibilities curve is achieved where
each good is produced at a level where marginal benefits equal marginal costs
The simple circular flow model shows that
households are on the selling side of the least-cost method production
A possible cause for the production possibilities curve shifting to the right because
a technological advance that allows farmers to produce more output from given inputs
For economists, the word utility means
pleasure and satisfaction
The economizing problem is one of deciding how to make the best us e of
limited resources to satisfy virtually unlimited wants
Opportunity cost is best defined as
the amount of one product that must be given up to produce one more unit of another product
Economic resources are also caleld
factors of production
Full employment refers to
the utilization of all available resources