The Economizing Problem

Chapter 2

Objectives Define the economizing problem, incorporating the

relationship between limited resources and unlimited wants Differentiate between full employment and full production Explain the concepts of allocative and productive efficiency

and how they differ Construct a production possibility curve when given

appropriate data Illustrate economic growth, unemployment &

underemployment of resources, allocative and productive efficiency and increasing costs using a PPC.

Differentiate between product and resource (factor) markets

Define and identify the terms and concepts listed at the end of the chapter

The economizing problem: society’s material wants are unlimited while resources are limited or scarce.

Fundamental Fact: Unlimited Wants Economic wants are desires of people to use

goods & services that provide utility, which means more satisfaction

Products are sometimes classified as luxuries or necessities, but division is subjective

Businesses and gov’t also have wants Over time, wants change and multiply

Fundamental fact: Scarce Resources Economic resources are limited relative to

wants Economic resources are called the factors of

production: land, labor, capital and entrepreneur

4 Factors of Production1. land

Must benatural & is limited

2. capital

Must be usedfor production

3. labor

The work force

4. Entrepreneurs

Risk takers insearch of anew business

Chris DeWolfe & Tom AndersonMy Space Mark Zuckerburg

FacebookWarren Buffett--Berkshire Hathaway

Phil KnightNike

Mark CubanBroadcast.com

Sean CombsBad Boy Records

Pierre OmidyarEbay

Economics: Employment and Efficiency Efficiency requires full employment of

available resources and full production Full employment means all available resources

should be used Full production means that employed

resources are providing maximum satisfaction of our economic wants. Underemployment occurs if this is not so.

Full production implies two types of efficiency ALLOCATIVE efficiency means that resources

are used for producing the combination of goods and services most wanted by society

PRODUCTIVE efficiency means that least costly production techniques are used to produce wanted goods and services

In other words: Full production means producing the

“right” goods (allocative efficiency) in the “right” way (productive efficiency)

Circular Flow See document manager or board

Write down the following list--goods & services--goods & services--business income--income from resources--land, labor, capital, entrepreneur--consumer spending--buy productive resources--payment for resources

Production Possibilities Frontier or Curve Big Graph #1 See graph (document manager or board)