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Summary Chapter 02 - The Economizing Problem
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The foundation of economics is the economizing problem: society's material wants are unlimited whileresources are limited or scarce.
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Chapter 02 - The Economizing ProblemThe foundation of economics is the economizing problem: society's material wants are unlimited while
resources are limited or scarce.
Unlimited wants (the first fundamental fact):
Economic wants are desires of people to use goods and services that provide utility, which means
satisfaction.
Products are sometimes classified as luxuries or necessities, but division is subjective.
Services satisfy wants as well as goods.
Businesses and governments also have wants.
Over time, wants change and multiply.
Scarce resources (the second fundamental fact):
Economic resources are limited relative to wants.
Economic resources are sometimes called factors of production and include four categories:
Land or natural resources,
Capital or investment goods which are all manufactured aids to production like tools,
equipment, factories, transportation, etc.,
Labor or human resources, which include physical and mental abilities used in production,
Entrepreneurial ability, a special kind of human resource that provides four important
functions:
Combines resources needed for production,
Makes basic business policy decisions,
Is an innovator for new products, production techniques, organizational forms,
Bears the risk of time, effort, and funds.
Resource payments correspond to resource categories:
Rent and interest to suppliers of property resources,
Wages and salaries to labor resources,
Profits to entrepreneurs.
Quantities of resources are limited relative to the total amount of goods and services
desired.
Economics: Employment and Efficiency
Basic definition:Economics is the social science concerned with the problem of using scarce resources to
attain the greatest fulfillment of society's unlimited wants.
Economics is a science of efficiency in the use of scarce resources. Efficiency requires full employment
of available resources and full production.
Full employment means all available resources should be employed.
Full production means that employed resources are providing maximum satisfaction of our
economic wants.Underemployment occurs if this is not so.
Full production implies two kinds of efficiency:
Allocative efficiency means that resources are used for producing the combination of goods and
services most wanted by society-for example, producing compact discs instead of long-playing
records with productive resources or computers with word processors rather than manual
typewriters.
Productive efficiency means that least costly production techniques are used to produce wanted
goods and services.
Full production means producing the "right" goods (allocative efficiency) in the "right" way (productive
efficiency).(Key Question 5)
Production possibilities tables and curves are a device to illustrate and clarify the economizing
problem.
Assumptions:
Economy is operating efficiently (full employment and full production).
Available supply of resources is fixed in quantity and quality at this point in time.
Technology is constant during analysis.
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