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)