Economizing Scarce Resources Review or  View Entire Chapter 2 2/27/19

2. Economizing Scarce Resources View Entire Chapter 2 
    
A. Factors of Production

Factor

Definition

Income

Land

Anything fixed (natural resources)

Rent

Labor

Physical and mental talents

Wages

Capital

Something physical to aid production (factories, computers, an educated/trained labor force)

Interest

Enterprise

Initiative, risk taking, innovation

Profit

    B. The Production Possibility Frontier (Curve) measures how many of two types of goods can be produced.

1. Static Model (time is constant, inputs are fixed)
    a. Consumer goods such as televisions, pizzas, and social security
         bring current satisfaction. 
     b. Capital goods such as machinery, tractors, and improved
        
 technology increase future productive capabilities.
    c. Point F on the production possibility frontier represents
        full employment of
all resources (100% efficiency).
    d. Point U represents unemployment of some economic resources.
    e. Having more capital goods requires giving up some consumer goods.
 

     f. Applies to individuals as you can invest by building a deck or going to school or
        you can go on an expensive vacation.
    g. How society and individuals answer these economic questions is explored in chapters five and six.
2.
Dynamic Model (time is not constant, inputs like factors and technology are not fixed, 
    growth indicated by, arrows occur
    a. As inputs increase, growth occurs and the curve shifts right.
    b. Point S represents slow growth due to high consumption.
    c. Point R represents rapid growth due to high capital investment.
    d. Economic and political system chosen and run by a society determines the location and
         movement of these variables
3.Opportunity costs
    a. The cost of Item A measured in terms of what must be foregone of Item B.
    b. When considering doing A, we consider the highest valued alternative as limited resources
         mean we can't afford both.
    c. For more information visit
the Production Possibilities Curve from Wikipedia.
  
 d. Politicians seldom talk of the opportunity cost of what they plan to do.
    e. Examples
        1. The opportunity cost of good grades is the value which could have been received 
             by  spending time with family and friends.
        2. The opportunity costs of more capital goods is the value which could have been
             received from having more consumer goods.
4. Law of increasing opportunity costs
    a. Opportunity costs usually increase.
        1. To have one unit of Item A you must give up amount X of Item B.
            To have a second unit of Item A you must give up more than amount X of Item B.
        2. Primary reason for increasing costs is resources are not perfect substitutes.
        3. Examples

            a) Training more people in math and science would increase productivity for a while
                 
but eventually people would be trained to be engineers who would be  more productive
                 as
managers, teachers, or entertainers etc.
            b) Gains from replacing people with machines may be large at first but eventually
                  machines would be used to
do what people can do more efficiently.
            c. When opportunity costs are not increasing, the production possibility curve is a straight line. 
                High tech investment may even bend the curve the other way with lower cost, but not forever!
            d. Below is an example of the trade-off between investing in high tech industries people versus
              
 entertainment industries.
            e. Alternative Production Possibilities for
10 entertainers and no technicians'.
                                                                                                   
                                                                                                            Units of Production

                     High tech                                                                        0     1     2      3     4
                     Entertainment                                                              10    9     7      4     0
             Cost of an additional unit of high tech production            2      3     4
             measured in terms of entertainment given up
      
            Example Adam Sandler, a great entertainer,  probably would not of been
            a great computer programmer, though his dad Stan was an electrical engineer,
            his sister Elizabeth a dentist,  and his brother a Scott a lawyer. Adam might be
            the first resource to move to create more production.