The Economizing Problem--Scarcity

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The Economizing Problem--Scarcity

• Chapter 2

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

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The economizing problem Scarcity societys
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 govt also have wants
• Over time, wants change and multiply

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• Fundamental fact Scarce Resources
• Economic resources are limited relative to wants
• Economic resources are called the factors of
  production land, labor, capital and
  entrepreneur

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Efficiency

• 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
• Full production means producing the right goods
  (allocative efficiency) in the right way
  (productive efficiency)

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4 Factors of Production
1. land
Must be natural is limited
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2. capital
Must be used for production
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3. labor
The work force (human capital)
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4. Entrepreneurs
Risk takers in search of a new business
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Mark Cuban Broadcast.com
Phil Knight Nike
Pierre Omidyar Ebay
Chris DeWolfe Tom Anderson My Space
Mark Zuckerburg Facebook
Warren Buffett--Berkshire Hathaway
Sean Combs Bad Boy Records
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Production Possibility Frontier or Curve

• See graph

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Circular Flow

• See document manager or board