Economics- The Economizing Problem(CH.2)

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Economizing problem

The choices necessitated because society's economic wants for goods and services are unlimited, but the resources available to satisfy these wants are limited (scarce).

Societys economic wants are virtually unlimited and insatiable

1st fundamental fact of the economizing problem

Economic resources are limited or scarce

2nd fundamental fact of the economizing problem

Societys economic wants

The economic wants of society's citizens and institutions

Utility

The want-satisfying power of of a good or service; the satisfaction or pleasure a consumer obtains from the consumption of a good or service (or from the consumption of a collection of goods and services)

Economic resources

The land, labor, capital, and entrepreneurial ability that are used in the production of goods and services; productive agents; factors of production

Land

Natural resources ("free gifts of nature") used to produce goods and services

Capital

Human-made resources (buildings, machinery, and equipment) used to produce goods and services; goods that do not directly satisfy human wants; capital goods

Investment

Spending for the production and accumulation of capital and additions to inventories

Labor

People's physical and mental talents and efforts that are used to help produce goods and services

Entrepreneurial ability

The human resource that combines the other resources to produce a product, makes non-routine decisions, innovates, and bears risks

Factors of production

Economic resources: land, capital, labor, and entrepreneurial ability

Full employment

The use of all available resources to produce want-satisfying goods and services

Full production

Employment of available resources so that the maximum amount of (or total value of) goods and services is produced; occurs when both productive efficiency and allocative efficiency are realized

Productive efficiency

The production of a good in the least costly way; occurs when production takes place at the output at which average total cost is a minimum and marginal product per dollar's worth of input is the same for all inputs

Allocative efficiency

The apportionment of resources among firms and industries to obtain the production of the products most wanted by society (consumers); the output of each product at which its marginal cost and price or marginal benefit are equal

Consumer goods

products and services that directly satisfy human wants

Production possibilities table

lists different combinations of two products that can be produced with a specific set of resources(full employment and productive efficiency)

Production possibilities curve

A curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed

Opportunity cost

The amount of other products that must be forgone or sacrificed to produce a unit of a product

Law of increasing opportunity costs

The principle that as the production of a good increases, the opportunity cost of producing an additional unit rises

Economic growth

an outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; an increase of real output(GDP) or real output per capita

Economic system

A particular set of institutional arrangements and a coordinating mechanism for solving the economizing problem; a method of organizing an economy, of which the market system and the command system are the two general types

Market system

All the product and and resource markets of a market economy and the relationships among them; a method that allows the prices determined in those markets to allocate the economy's scarce resources and to communicate and coordinate the decisions made by consumers, firms, and resource suppliers

Capitalism

An economic system in which property resources are privately owned and markets and prices are used to direct and coordinate economic activities

Command system

A method of organizing an economy in which property resources are publicly owned and government uses central economic planning to direct and coordinate economic activities

Resource market

A market in which households sell and firms buy resources or the services of resources

Product market

A market in which products are sold by firms and bought by households

Circular flow model

The flow of resources from households to firms and of products from firms to households. These flows are accompanied by reverse flows of money from firms to households and from households to firms

Allocate

to set apart or designate for a special purpose; to distribute

Capital goods

Products that satisfy our wants indirectly by making possible more efficient production of consumer goods

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