The economizing problem rotates around the allocation of the various resources among competing wants. This is because of
- Unlimited wants
- Limited resources
Resources and factor payments.
The various resources include,
- Land. This is the space, it is a natural resource and is paid in rent.
- Capital. This is a physical asset in the production, it is paid in interest.
- Labor. This are the skills, ability, knowledge and the effort exerted by the people in production.
- Entrepreneurship. The economic agent who creates the enterprise, paid in profit.
Full employment.
Natural rate of unemployment and down time for normal maintenance .
Unemployment is when there is utilization of resource in a less manner than what is consistent with full employment.
Economic efficiency.
Consist of three components
- Allocative efficiency-measured using a concept known as parapeto superiority.
- Technical efficiency-for a given output you minimize the cost.
- Full employment-for a system to be economically efficient then this is required.
Allocation of resources. Implies that decision must be made ,
Choice is costly but there is an opportunity cost.
The production possibility curve. is a model used to show choices.
Inefficiency, unemployment, and underemployment. Inefficiency is the violation of the production possible.
Economic growth. This is the shift to the right of the production possibility curve . this can only happen if,
- There is more revenue
- better technology
Economic system. Rarely exists in a pure form, classification of the system is based in the dominant characteristics.
- pure capitalism-private ownership of production activity.
- command- government make the decision with force of law.
- Traditional-based on social mores or ethics.
- Communism-everyone shares equally in the output of the society in large.
- Socialism-maximizes individual welfare based on perceived needs.
- Mixed system-contains elements of more than one system for example the United States of America.
Revision
Define production
Using resources to make and sell goods and services to satisfy consumer wants
What is the input and output in production/productive activity
The input are resources to productive activities, and goods and services are the outputs or products
What are the factors of production? Give examples for each
Capital: Machinery, capital goods, and finance, man made resources
Enterprise: A firm, or entrepreneurs to combine the factors of production, who have the business know-how, to run and organize the production process
Labor: Human resources, manual labor, provide physical and mental effort
Land: Natural resources-seas, rivers, minerals, forests, deserts, chemicals/gases from the air, fertile soil, coal/oil, and animals
What is a free good?
Resources that are not scarce, such as air (but it isnt quite because as pollution rises etc)
What is a basic need?
A need is an essential good, that we need for survival, such as clean water, food and shelter
What is consumption?
Using up goods and services to satisfy our needs and wants
What are the people that buy goods and services called and what is their spending?
Consumers, consumption expenditure
What is exchange in the modern economy?
In order to obtain goods and services they can’t produce themselves, like crops for a normal city goer, they must engage in trade/exchange by going to work to earn money, then exchanging this money for g and s.
What is a consumer good, and what are the sub types
Consumer good is a good that satisfies consumers wants.
Consumer durable good: A good that lasts a relatively long time, a.k.a car, furniture, computer
Non-durable good: Goods that perish quickly, food, drinks, matches
What is a consumer service?
People doing stuff for us like medical services, health care, police
What are capital goods? Why are they known as investments?
Goods that used in production to make other goods, usually tools and machinery like screwdrivers. Or roads, power stations and factory buildings. They;re known as investments bc firms can use them to produce g and s and it will help increase production + help the economy grow
What is a public good?
Its a non excludable good, you can’t stop people from benefiting from it even if they don’t pay. They’re provided by the government because everyone benefits from them but people might not pay for them, and no private firm wants to produce these goods because they;re unprofitable.
Examples of public goods
Street lighting, the police, law and order, defense-public sector stuff
What are Merit goods
Goods and services that the government provide for free to consumers as they think that consumers will benefit from them, and to benefit the economy. Such as healthcare and education.
How are public goods and merit goods payed for?
TAX from people’s incomes. We’re the tax payers
What economic problem is choosing how resources are used related to
Scarce resources have alternative uses, or opportunity cost
What is opportunity cost?
The benefit of the next best alternative foregone. There will always be a conflict of interests as some group of people won’t get what they wanted.
An example of opportunity cost
In everything from buying goods and services to allocating resources. A plot of land could be used for farming by a company which could have been used for building a new school. the benefit foregone is the children’s education or whatever
What is a production possibility curve look like, and what does it show
Its an outward bending curve sloping downwards. The combined maximum output of two products or groups of products a firm or an economy can produce efficiently with existing resources and technology. How much of two things a company can produce.
Why do some people have greater choice?
Usually, people in MEDC’s, with higher incomes have access to more available resources in their countries
