Unit 1 - Scarcity, Factors of Production, Production Possibilities Graph (1-5-16 to 1-8-16)

Macroeconomics vs. Microeconomics

Macro: study of the economy as a whole

• supply and demand
• international trade
• minimum wage 

Micro: study of individual or specific units of the economy

• market structures 
• business organizations 

Positive Economics vs. Normative Economics 

Positive: attempts to describe the world as is, very descriptive, collects and presents FACTS

Normative: attempts to prescribe how the world should be. OPINIONS

• "ought to be"
• "should be"

Needs vs. Wants

Needs: Basics requirement of survival

• water, food, shelter, clothing

Wants: Desire of citizens

• cars, candy, computers, cell phones

Goods vs. Services

Goods: Tangible commodities

• bought, sold, or produced 

1. Capital Goods: items used in the creation of other goods (trucks, factory machines) 
2. Consumer Goods: intended for final use by the consumer

Services: work that is performed for someone

• haircut, concert, school

Scarcity vs. Shortage

Scarcity: Most fundamental economic problem facing all societies; how to satisfy UNLIMITED wants with LIMITED resources. Always involves a choice.

Shortage: Quantity demanded is greater than quantity supplied

Factors of Production

1. Land: natural resources
2. Labor: work force
3. Capital: human and physical

• Human = skills(college, training). where did you get those skills?
• Physical = tools, machines, buildings

      4. Entrepreneurship: innovated, risk-taker, owning a business

Production Possibilities Curve/Graph (PPC/PPG)

Trade-offs: alternative that we give up when we choose one course of action over another
Opportunity-cost: next best alternative
Efficientcy: using resources in such a way as to maximize production of goods and services
Allocative Efficiency: products being produced are the ones that are most desired by society
Productive Efficiency: products being produced in the least costly way. (any point on the production possibility curve)
Underutilization: using fewer resources than an economy is capable of using

Production Possibilities Curve: shows alternative ways to use economy's resources
   (4) Assumptions:

1. Two goods
2. Fixed resources
3. Fixed technology
4. Full employment of resources

3 Types of Movement Occur within PPC

Inside PPC: resources unemployed, resources underemployed, and/or productive efficientcy. attainable, INEFFICIENT
Along PPC: attainable, but EFFICIENT
Shifts of the PPC: when resources and technology change

 

What causes the PPC/PPG to shift?

1. technology change
2. change in resources
3. change in labor force
4. economic growth
5. national disasters/war/famine
6. more education or training