Scarcity and Choice

the fundamental economic problem of societies

how to best manage the resources of society

what is scarcity

all resources are always limited

what are resources

instruments provided by nature or people that are used to create goods and services

land

all natural resources (water, soil, minerals and sunlight)

labor

human effort (physical and mental)

captial

goods used to make other goods (tools, machines, factories)

Is money capital

no, only means of exchange

enterprise

combine land, labor and capital to meet a need, in effort to make a profit

who does scarcity effect

every person and nation

effects of scarcity

can bring all types of suffering and problems (slavery, war)

if all inputs are scare then all outputs

are scarce

scarcity necessitates

choice

economics

how best to use limited means in pursuit of unlimited ends ( get most out of what we have)

opportunity cost

value of the next best forgone alternative

we must give up one good

in order to gain more of the other due to scarcity resources

opportunity cost is not the money cost

which is the market price

opportunity cost and money cost of a good should be

closely related if markets are functioning well

there are no explicit prices for some valuable resources

which included in the opportunity cost

total cost of a good

money cost + opportunity cost

allocation of resources

determining which resources are used to produce which goods and services

production possibilities frontier

shows the maximum combo of that can be produced with the given resources

when a graph is negatively sloped

illustrates trade-off in production

the slope

graphical representation of opportunity cost

reason for concave (bowed outward)

inputs tend to be specialized

principle of increasing cost

as the production of one good expands, the opportunity cost of producing another unit of this good generally increases

if input is not specialized

constant productivity along a production possibility frontier

concept of efficiency

no waste

efficiency is when

all available resources are utilized

efficiency does not tell us

which point is best on the production possibilities frontier

any point inside the frontier

is inefficient

economic growth

producing more goods and services

consumption goods

used up

captial goods

used to make other goods

division of labor

breaking up a task into smaller more specialized tasks

specialization

each worker does a specific task

progressions

division labor

division labor

specialization

specialization

productivity growth

productivity growth

need for exchange

need for exchange

money

comparative advantage

producing a good less inefficiently compared to other countries or workers

coordination tasks of any economy

how, what, how much

how

to utilize resources efficiently

what

combination of goods and services to produce

how much

of each good to distribute to each person

what makes the exchange system work smoothly

market system

market system

economic organization which resource allocation is left to individual consumers

“invisible hand”

force within the self-interest and pursuit of profit

sometimes the solutions are comparable with

societies goals, other times not `