Tuesday, August 20, 2013

Unit 1 study of scarcity & how people behave

- unlimited wants + limited resources = scarcity choices to make: - want to produce - how to produce - from whom to produce
4 factors of production

- land: forests, minerals, oil, water, arable land ex) salt, flower, eggs, milk, tomato sauce, cheese, sausage - labor force: all physical & mental talents of individuals ex) chief baker, cook, delivery person, internet, mixing, washed his
hands, prepared, cooks, delivered

- capital: *NOT MONEY!!* things that aid production (tools, machines,

computers, factories)

telephone, computer, kitchen, sink, oven, cardboard box, car, monitor - entrepreneur: risk bearer, combines land, labor, and capital; create new
goods & services; the owner

The circle flow model

- money flows clockwise - resources flow counterclockwise

Vocabulary

- utility = satisfaction - marginal = additional - allocative = distribute - price: amount buyer/ consumer pays - cost: amount seller pays to produce good - Investment: money spent by business to improve their production - goods: physical objects that satisfy needs & wants consumer goods: created for direct consumption (ex: pizza) capital goods: created for indirect consumption (ex: oven) - services: actions/ activities that one person performs of another (teacher) - Law of Diminishing Marginal Utility consumption increases & utility decrease !1

Tuesday, August 20, 2013

Scarcity vs shortages

- scarcity occurs at all times, for all goods - shortages occur when producers will/cannot offer goods/services at current
prices

is temporary
Accountants vs Economics

- accountants look at only EXPLICIT COSTS explicit costs: traditional out of pocket costs of decision making - going to Disneyland - Economists look at explicit costs & implicit costs implicit costs: opposite costs as for some time & for some income
Constant Opportunity Cost 8 - using same resources 6 - *never curved in* 4 2 0 Increasing Opportunity Cost

" "

Pizza

- require different resources

Calzone
The Production Possibilities

- Only 2 goods can be measured/produced - full employment of resources - fixed resources - fixed technology (at that moment) 14 14 Opportunity Cost 13 - A -> B: 2 Bikes 10.5
Bikes

" " " " " " "

Per Unit Cost

9
7

5
3.5

- A -> B: 1 Bike - B -> C: 3/2 Bikes - B -> C: 7 Bikes - D -> B: 4 Computers - C -> D: 2 Bikes - D -> E: 5/2 Bikes - F -> C: 0 :) - A -> D: productive efficiency

2
0 0 2 4 6 8 10

- Productive Efficiency:

Computers

products are being produced in least costly way any point ON production possibilities curve - Allocative efficiency: product being produced are ones most desired by society !2

Tuesday, August 20, 2013 optimal point on the Productive Possibilities Curve (PPC) depends on
desires of society

Shifting the Production Possibilities Curve

- 3 shifters of PPC: 1. change on quality/ resource 2. change in technology 3. change in trade - increase in population shifts PPC - focuses not on capital goods, better for you
rescue princess catching ghosts mario 3" luigi 1" (! ) (4) 1" 4" (3) (#)

Mario

Luigi

Value Axis

5 4 3 2 1 0 0 1 2 3 4 5 6 7

absolute advantage: who or what is better always diagonal

Category Axis

Steps:

first opposite goes over the numbers in the () next, choose the smallest number within the () - that will be comparative advantage for the extra curve, take the absolute advantage value and draw a
curve

Types of Economic Systems Traditional Command Market

- deals w/ aborigines/ -

indigenous people stagnant & lack of economic roles are established allocation of resources are based on cultural needs

- central authority mass business allowed to economic decisions make economic - capable of quick & decisions dramatic change - little flexibility to - consumer/producer make w/ small things no room for individuality

very flexible - increase in technology

decision

Economic Goals 1. full employment: getting as many people to work as possible (4-6% unemployment) 2. Economic Growth: People want their wealth to grow 3. Price stability: inflation control 4. Economic Security: avoid recessions & depression (social security)

!3