Trade-Offs and Trade

Goods and Services: Things people value and produce to satisfy wants

Factors of production: The resources used to produce goods and services

 How are goods and services produced?

1. Land- A natural recourse that includes minerals, gas, coal, water, air, forests, and fish

2. Labor- The time and work people devote to producing goods and services

3. Capital: The tools, instruments, machines, buildings, and other constructions that businesses use to produces goods and services

Ex- Mining equipment, office towers, auto assembly lines

1. Entrepreneurship- The human recourse that organizes labor, land, and capital

   

The economy determines what, how, and whom goods are produced

How goods and services are produced changes over time

1. Education and training increase human capital

2. Advances in tech expand the range of automated tasks that change the role of human effort

For whom goods and services are produced

• Who gets the goods and services depends on their income

People earn income by selling the services of the factors of production they own:

• Land earns rent

• Labor earns wages

• Capital earns interest

• Entrepreneurship earns profit

  

Economic problem: To make the best choices

Production efficiency: When it is not possible to produce more of one good or service without producing less of something else

Production inefficiency= wasting recourses

"There is no such thing as free lunch" When production is efficient, we can’t get something for nothing for free

With no wasted recourses, we face

1. Tradeoff: An exchange

2. Opportunity cost: The best thing you must give up to get it

   

PPF: A description of the limits to what can be produced given the available resources and technologies

All points inside the PPF and on the PPF are attainable. All points outside out unattainable

Economic growth: The expansion of production and possibilities

Technological change: The development of new goods and of better ways of producing

Capital accumulation: The growth of capital recourses, including human capitalComparative advantage: When someone can produce a good at a lower opportunity cost

Absolute advantage: When someone is more productive than others and can outperform in many activities

Economic life is organized by 2 categories:

• Households: Individuals or people living together

• Firms: Institutions that organize the production of goods and services

  

Market:  Any arrangement that brings buyers and sellers together and enables them to get information and do business with each other

Goods markets: Goods and services are sold

Factor markets: Services of factors of products are bought and sold

Market Price: Coordinates the choices made by buyers and sellers of a good