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NO SOCIETY CAN AND WILL HAVE EVER ENOUGH TO SATISFY IT’S CITIZENS DESIRES OR WANTS

THE PROBLEM ALL SOCIETIES FACE IS UNLIMITED WANTS AND LIMITED RESOURCES. WHICH WE WILL CALL SCARCITY. NO SOCIETY CAN AND WILL HAVE EVER ENOUGH TO SATISFY IT’S CITIZENS DESIRES OR WANTS EVERYONE ALWAYS WANTS MORE AND THERE IS NOT ENOUGH TO GO AROUND FOR ALL. MY PICTURE OF SCARCITY.

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NO SOCIETY CAN AND WILL HAVE EVER ENOUGH TO SATISFY IT’S CITIZENS DESIRES OR WANTS

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  1. THE PROBLEM ALL SOCIETIES FACE IS UNLIMITED WANTS AND LIMITED RESOURCES. WHICH WE WILL CALL SCARCITY NO SOCIETY CAN AND WILL HAVE EVER ENOUGH TO SATISFY IT’S CITIZENS DESIRES OR WANTS EVERYONE ALWAYS WANTS MORE AND THERE IS NOT ENOUGH TO GO AROUND FOR ALL

  2. MY PICTURE OF SCARCITY

  3. Limits, Alternatives, & Choices [Part 2] Dealing with“Scarcity” Choices Limited Resources Unlimited needs & wants

  4. THE FOUNDATION OF ECONOMICS SOCIETY HAS VIRTUALLY UNLIMITED WANTS...

  5. The Four Factors of Production Resources beget production, which beget income, which beget wealth. . 1. Land [natural resources] – Nature’s items [“gifts of nature”] A. In the earth - coal, oil, water, fossil fuels, etc. B. On the earth – vegetation and water C. In the atmosphere – sun, wind, and rain [Land is the starting pointof all production. “Stuff” from which everything is made. Water Wind “Gifts of Nature” Fossil fuels Sun

  6. 2. Labor [human resources] {“effort”} anyone who works [“paid work”] [Labor is the “brain-power” and “muscle-power” of human beings] A. Physical– pro athletes & lumberjacks B.Intellectual – ministers, doctors & lawyers . *Most important resource – 70% of input cost “Hired Help”

  7. Real Capitalv.FinancialCapital . REAL CAPITAL [tools, machinery, & factories] Can produce something directly with these FINANCIAL CAPITAL [stocks, bonds, and money] Can’t produce anything directly with these

  8. . 3. Capital Resources – all “man-made inputs” used in the production process (tools, machinery, and physical plants). A. Capital goods – goods [machinery, buildings, & tools] used to produce other goods. [crane, Ford plant, hammer] [products meant for “future consumption”] B. Consumer goods – products meant for “immediate consumption”. A product can be both a consumer good and a capital good –depends on its use. Ex: Jet aircraft used by a movie star [like Jim Carey] to visit friends (consumer good). The same aircraft used by a business manager to serve customers [capital good]. Ex: F150 pick-up to deliver produce [capital good] or take family to church [consumer good] “man-made inputs”

  9. Rent Wages Interest Profits Land Labor Capital Entrepreneur . 4. Entrepreneurship – starting a new business or introducing a new product. “Sparkplugs” who introduce the product or start the new business. He combines land, labor, & capital to produce products. Resource payments. The resource owners receive rent [for the use of their land; wages[for their labor];interest [payment for financial capital], and profits[for their entrepreneurial ability].

  10. MY EXAMPLE

  11. SCARCITY REQUIRES CHOICE ECONOMIST CALL THIS OPPORTUNITY COST • WHAT IS YOUR OPPORTUNITY FOR BEING IN THIS CLASS RIGHT NOW? • OC- IS YOUR NEXT BEST ALTERNATIVE • THERE IS NO SUCH THING AS A FREE LUNCH. • UNLESS IT IS A FREE GOOD—EXAMPLE THE SUN-FREE DON’T HAVE TO GIVE UP ANYTHING TO GET IT.

  12. The Opportunity Cost is the "Opportunity Lost" Opportunity Cost Opportunity Benefit Opportunity Set [“what is possible for $10,000”] Choices Opportunity Costs Scarcity

  13. A look at one of the tallest of the High 5 support structures High Five cost $261 million Non-economic Way Of Thinking There is one more highway project and nothing less of anything else. Cost twice as much as any other state transport. project. 500,000 cars daily They received$11 million for finishing early. 2 mil. Lbs of concrete, 200,000 lbs of reinforcing steel Economic Way Of Thinking There is one more highway project & a lot less of many other things.

  14. ACCOUNTANTS VS ECONOMIST • ACCOUNTANTS=EXPLICIT COST ONLY • EXPLICIT COST-THE SEEN COST • ECONOMIST=EXPLICIT + IMPLICIT COST • IMPLICIT COST =OPPORTUNITY COST

  15. AN EXAMPLE OF ACCOUNTANT VERSUS ECONOMIST • COST OF A LEMONADE STAND • SUGAR-$2 • WATER-$1 • LEMONS-$5 • OTHER JOB YOU COULD HAVE WOULD PAY YOU $5 • REVENUES=$10 • ACOUNTANT COST • =$8 • ECONONOMIST COST • =$13 • ACCT WOULD SAY YOU MADE WHAT AMOUNT OF PROFIT? • $2 PROFIT • ECONOMIST WOULD SAY YOU LOST HOW MUCH? • $3

  16. ANOTHER WAY OF SAYING IT • ACOUNTANTS = ALL EXPLICIT COST • (DON’T COUNT OPPORTUNITY COST) • ECONOMIST= • EXPLICIT +IMPLICIT • OR EXPLICIT+ OPPORTUNITY COST

  17. OC IS GRAPHED AS A PPC CURVE • PPC CURVE- PRODUCTION POSSIBILITIES CURVE • GUNS VERSUS BUTTER? WHATS THAT? YOU WILL SEE!

  18. Graphical representation of the opportunity cost of using scarce resources to produce one good [or service] instead of another good [or service]. Production Possibilities Curve [PPC] 10 7 Capital Good [Robots] 3 6 4 5 Consumer Good [iPods]

  19. 5 PPC Concepts . • Scarcity is represented by the frontier line. • 2.Choices- represented by pts A, B. or C. 3. Opportunity Cost is illustrated in terms of moving from one point to another when resources are utilized to their full potential. [must make choices] 4. Efficiency - producing maximum output with available resources and technology. We can’t increase production of one good without decreasing that of another. 5. Economic growth occurs for one of two reasons. A. More resources [land, labor, or capital]become available. B. Technologyimproves. [more outputs from same inputs]

  20. PRODUCTION POSSIBILITIES Q 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Unattainable A B W C Attainable & Efficient Robots(thousands) D Attainable but Inefficient E 1 2 3 4 5 6 7 8 Pizzas(hundred thousands) Q

  21. Production Possibilities Curve • Economic Growth • More/better resources • Better technology A’ 14 13 12 11 10 9 8 7 6 5 4 3 2 1 B’ A B C’ Unattainable C Industrial Robots D’ D Now Attainable Attainable E’ E 0 1 2 3 4 5 6 7 8 9 Pizzas

  22. PRODUCTION POSSIBILITIES Q 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Robots(thousands) Q 1 2 3 4 5 6 7 8 Pizzas(hundred thousands) Unemployment & Underemployment Shown by Point U More of either or both is possible U

  23. A C A P I T A L G O O D S B More or better resources or better technology G C F D PPC E Consumer Goods 40. At what letter is there unemployment [recession]? 41. What letters represent resources being used in their most productive manner? [full employment, full production, and best available technology] 42. What letter represents an improvement in technology, therefore a new PPC frontier line? 43. The (straight line/curve) illustrates the “law of increasingcost”? 44. The (straight line/curve) illustrates the “law of constant cost.” 45. At what letter would there be the most economic growth in thefuture if a country were producing there now? 46. What is the opportunity cost when moving from “C” to “D”; when moving fromE to B; & do we have to give anything up when moving from F to D? F A,B,C,D,E G A Capital Consumer no

  24. PPC Practice Questions 1. An economy that is fully employing all its productive resources but allocating less to investmentthan toconsumption will be at which of the following positions on the PPC to the right? a. A b. B c. C d. D e. E 2. Which of the following best explains the shape of the PPC for the two-commodity economy shown above? a. Opportunity cost of producing another unit of each stays the same. b. Opportunity cost of producing another unit of each decreases. c. Opportunity cost of producing another unit of each increases. 3. Which of the following is true of the PPC on the right? a. Point Q is attainable but undesirable. b. Point R is unattainable but undesirable. c. A technological improvement of watches would move the economy from T to P. d. There is unemployment at point T because workers e. The opportunity cost of moving from S to T is the # of watches given up. 4. If we move from B to C on the graph (right), the opportunity cost is? a. AH units of good Y b. OG units of good Y c. EF units of good X d. HG units of good Y A H G O B C

  25. PPCPracticeQuestions[continued] 5. Which of the following would cause the PPC shown (right) to shift outward? a. Reopening steel plants that had been closed b. Rehiring laid-off workers c. Using machinery for missile production instead of steel production d. Using machinery for steel production instead of missile production e. Developing a more efficient steelmaking process 6. Base on the graph (right), which statements are true? I. The opportunity cost of moving from P to R is 10 units of Y. II. The opportunity cost of moving from R to P is 8 units of X. III. The opportunity cost of moving from Q to R is 0 units. a. I only b. III only c. I & II only d. I, II, & III Missiles Steel X

  26. (89%) 3. If two coats are currently being produced, the opportunity cost of producing the third coat is a. 85 belts b. 75 belts c. 40 belts d. 15 belts e. 10 belts (50%) 4. The best combination of belts and coatsfor this economy to produce is a. 95 belts & 1 coat b. 85 belts & 2 coats c. 70 belts & 3 coats d. 40 belts & 4 coats e. indeterminate with the available information From the 2005 Macro MC Exam 100 95 85 PPC Belts 70 40 0 1 2 3 4 Coats

  27. BECAUSE OF SCARCITY SOCIETIES MUST CHOOSE A SYSTEM TO ANSWER 3 QUESTIONS • WHAT TO PRODUCE? • HOW TO PRODUCE IT? • FOR WHOM TO PRODUCE IT?

  28. 3 TYPES OF ECONOMIES • TRADITIONAL ECONOMY- Traditions dictate what gets produced, who gets it and who will produce it. • COMMAND ECONOMY-government dictate what gets produced, who gets it and who will produce it. • MARKET ECONOMY- Supply and Demand. The market dictate what gets produced, who gets it and who will produce it.

  29. The Circular Flow is an abstract, oversimplified model, showing how economic transactions [resources, products (g/s), and money] take place. The Circular Flow

  30. Hog CIRCULAR FLOW MODEL RESOURCE MARKET 1 2 Mechanic Flow 4. Products [Goods/services] HOUSEHOLDS BUSINESSES Flow 3: Consumer expenditures 3 PRODUCT MARKET 4

  31. Hog CIRCULAR FLOW MODEL RESOURCE MARKET 1 2 Mechanic Flow 4. Products [Goods/services] HOUSEHOLDS BUSINESSES Flow 3: Consumer expenditures Flow 1: Land, Labor, Capital, Entrepreneur Flow 2: Rent, Wages, Interest, Profits 3 4 PRODUCT MARKET

  32. The Circular-Flow Diagram Product Market 1 2 What flow are the following? A. Consumer expenditures? B. Goods and services? C. Land, labor, capital, and entrepreneurs? D. Rent, wages, interest, and profits? 2 1 4 Businesses 3 Households Labor 3 4 Resource Market

  33. The Circular-Flow Diagram Resource Market Labor 1 2 • What flow are the following? • A. Goods/services? • B. Consumer expenditures? • C. Land, labor, capital and • entrepreneurial ability? • Rent, wages, interest, • and profits? 4 3 1 2 Households Businesses 3 4 Product Market

  34. NS 56-59 Fuzzy Wuzzy 56. In the product market (householders/businesses) are the demanders and (householders/businesses) are the suppliers. 57. In the resource market (householders/businesses) are the demandersand (householders/businesses) are the suppliers. 58. In the resource market, (householders/businesses) sell resources to (householders/businesses). 59. In the product market, (householders/businesses) sell products [goods/services] to (householders/businesses).

  35. NS 60-63 Outhouse 4 3 1 2

  36. NS 33-39 [Scarcity, choices, and opportunity costs are building blocks]. 33. The economizing problem is deciding how to make the best use of (limited/unlimited) resources to satisfy (limited/unlimited) wants. 34. Money is not considered an economic resource because money (is/is not) productive. The process of accumulating capital goods[tools, machinery, and factories) is (depreciation/investment). 35. Give examples of real capital. ________________________ 36. The payments for the 4 factors of production are: 37. The PPC illustrates the principle that if all resources of an economy are in use, more of one good can be produced only if (more/less) of another good is produced. 38. Give two reasons that could shift the PPC outward. __________________________________________________ 39. The opportunity (cost/benefit) is the 2nd best choice. Any tool, machine, or factory Interest Rent Profits Wages Land Labor Capital Entrepreneur More or better resources; better technology

  37. Absolute Advantage and Comparative Advantage

  38. An example of Absolute and Comparative Advantage

  39. Absolute and Comparative Advantage • Hat 8 = 1 corn • 10 hrs for 1 cloth • 18hours to make both • Mc • 15 hrs 1 corn • 12 hrs to make 1cloth • 27 hour • Hat grow two corns16 hour for hat • MCcoys grow two cloths- 24 hours

  40. COMPARATIVE AND ABSOLUTE ADVANTAGE DEFINITIONS • Absolute advantage- you can just plain out produce some one else • Hatfields had an AA in both corn and cloth. • Comparative advantage- the one with the lowest opportunity cost decides what to produce-

  41. Comparative Advantage – can produce a product at a "lower opportunity cost". Absolute Advantage[outputs] – can produce absolutely more with the same inputs. [Inputs are constant as outputs vary] Absolute Advantage[inputs] – can produce absolutely faster with the same inputs. [Outputs are constant as inputs vary]

  42. Absolute Advantage – [outputs] can produce absolutely more with the same inputs [more efficient]. I Can do 42 push-ups, but 102 if you play the Aggie Fight Song. I Can do 8 push-ups. I have an absolute advantage in the production of push-ups. Texas Longhorn Texas Aggie Absolute Advantage – [inputs] can produce absolutely faster with the same inputs [more efficient]. I’m more efficient. I can do the same work in 3 hours so I have an absolute advantage. I can clean that house in 4 hours.

  43. AN EXAMPLE OF COMPARATIVE AND ABSOLUTE ADVANTAGE • ---------------Cars Tacos • Usa 100 50 • Mexico 30 90 • Absolute advantage in cars- • usa • Absolute advantage in tacos- • mexico • Comparative advantage in cars- • USA • Comparatve tacos • MEXICO

  44. PRACTIVE COMPARATIVE AND ABSOLUTE ADVANTAGE • cars tacos • Usa 2 4 • Mexico 4 12 • AA Cars • Mexico • AA Tacos • Mexico • CA Cars • USA • CA Tacos • Mexico • What does It cost USA to make 1 car? • 2 tacos • ‘ Mexico • 3 tacos • What does it cost USA to make 1 taco • ½ car • Mexico • 1/3 of a car

  45. MORE PRACTICE • cars tacos • Usa 4 20 • Mexico 10 40 • AA C • MEX • AAT • MEX • CAC • MEX • CAT • USA • What does It cost USA to make 1 car? • 5 TACOS • ‘ Mexico • 4 TACOS • What does it cost USA to make 1 taco • 1/5 CARS • ‘ Mexico • ¼ CARS • NEW INCENTIVE-IF YOU DON’T BRING YOUR PACKETS YOU GET A ZERO FOR THE DAY!!!!!!!!

  46. Rule of Hours-everything opposite • cars tacos • Usa 4hrs 20hrs • Mexico 10hrs 40hrs • AA C • usa • AAT usa • CAC • usa • CAT • mexico • What does It cost USA to make 1 car? • 1/5 of a TACO • What does it cost Mexico to make 1 car? • 1/4 TACOS • What does it cost USA to make 1 taco • 5 CARS • ‘ Mexico • 4 CARS

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