ü Society’s economic wants – the economic wants of its citizens and institutions – are virtually unlimited and insatiable.
ü Economic resources – the means of producing goods and services – are virtually limited or scarce.
Resource Categories:
· Land – includes all natural resources that are used in the production process, such as arable land, forests, mineral and oil deposits, and water resources.
· Capital – includes all manufactured aids used in producing consumer goods and services.
· Labor – is a broad term for all the physical and mental talents of individuals available and usable in producing goods and services.
· Entrepreneurial ability – The entrepreneur performs several functions:
§ The entrepreneur take the initiative in combining the resource of land, labor and capital to produce a good or a service.
§ The entrepreneur makes the strategic business decisions and set the course of an enterprise.
§ The entrepreneur is an innovator.
§ The entrepreneur is a risk bearer.
Resource Payments:
· Rental income – income received from supplying raw materials.
· Interest income – income received from capital equipment.
· Wages – income accruing to those who supply labor.
· Profits – entrepreneurial income
ECONOMICS : EMPLOYMENT AND EFFICIENCY
ü Full employment – the use of all available resources.
ü Full production – all employed resources must be used so that they provide the maximum possible satisfaction of our economic wants.
2 Kinds of Efficiency
· Productive Efficiency – is the production of any particular mi of goods and services in the least costly way.
· Allocative Efficiency – is the least cost production of that particular mi of goods and services most wanted by society.
ü Production Possibilities Table – lists the different combinations of two products that can be produced with a specific set of resources.
ü Assumptions
· Full employment and productive efficiency – The economy is employing all its available resources and is producing goods and services at least cost.
· Fixed resources – the available supplies of the factors of production are fixed in both quantity and quality.
· Fixed technology – The state of technology is constant.
· Two goods – Pizzas symbolize consumer goods, products that satisfy our wants directly, industrial robots symbolize capital goods, products that satisfy our wants indirectly by making possible more efficient production.
ü Law of Increasing Opportunity Cost
The more of a product that is produced, the greater is its opportunity cost.
ECONOMIC SYSTEMS
- A particular set of institutional arrangement and a coordinating mechanism. They differ as to (1) who owns the factors of production and (2) the method used to coordinate and direct economic activity.
2 General Types of Economic Systems
· Market System – individuals own most resources and markets coordinate most economic activity.
· Command System – government owns most resources and central planners coordinate most economic activity.
CIRCULAR FLOW MODEL
- It locates the product and resource markets and shows the major real and money flows between businesses and households. Businesses are on the buying side of the resource market and the selling side of the product market. Households are on the selling side of the resource market and the buying side of the product market.
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