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The Economizing Problem

The Economizing Problem. Chapter Two. The Foundation of Economics. Economizing Problem Limited resources Unlimited wants Utility- usefulness or satisfaction. Unlimited wants. Wants extend over a wide range of products (necessities…luxuries).

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The Economizing Problem

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  1. The Economizing Problem Chapter Two

  2. The Foundation of Economics • Economizing Problem • Limited resources • Unlimited wants • Utility- usefulness or satisfaction

  3. Unlimited wants • Wants extend over a wide range of products (necessities…luxuries). • Wants change due to the introduction of new products. • The objective of all economic activity is to fulfill wants.

  4. Resource categories • Land • Capital • Labor • Entrepreneurial ability Called the factors of production

  5. Resource Payments • Income from supplying resources: • Land & capital- rental & interest income • Labor- wages • Entrepreneurial income- profits

  6. Full Employment • Nobody should be out of a job if they are willing and able to work.

  7. Full Production • Resources should be used to the maximum possible efficiency. • Two types of efficiency: • Productive • Allocative

  8. Production Possibilities Table • Lists different combinations of two products that can be produced. • Assumptions • Full employment and productive efficiency • Fixed resources • Fixed technology • Two goods

  9. Production Possibilities Table Pizza & Robots Production Alternatives

  10. Unemployment & Productive Inefficiency • Unemployment or productive inefficiency falls inside the production possibilities curve. • Growing Economy – Curve shifts outward • Increase in resource supplies • Advances in technology

  11. Opportunity Cost • The amount of a product that must be given up to obtain 1 unit of a specific good. • Law of Increasing Opportunity Cost • The more of a product that is produced, the greater is its opportunity cost.

  12. Types of Economic Systems • Market System • Command System • Traditional System • Mixed System

  13. Market System • Each participant acts in his/her own self-interest. • Each individual or business seeks to maximize its satisfaction or profit. • Private ownership of resources • Prices to coordinate and direct economic activity

  14. Command System • Also known as Socialism or Communism • Government owns most property resources • Economic decision making occurs through a central economic plan.

  15. Traditional System • Relies on traditions and customs from the past • Found in rural areas where families are self-sufficient

  16. Mixed System • Blend of market, command, & traditional economic systems

  17. Circular Flow Model • Two groups of decision makers (households & businesses) • Two broad markets (resource market & product market)

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