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The Economizing Problem

Learn about the economizing problem, resource categories, full employment, production possibilities, opportunity cost, types of economic systems, and the circular flow model in economics. Gain insights into limited resources, unlimited wants, and economic decision-making processes.

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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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