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Fundamental Economic Problem

Fundamental Economic Problem . Scarcity Condition that arises because society does not have enough resources to produce all the things people would like to have. Factors of Production. Productive Resources (1) land “gift of nature”

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Fundamental Economic Problem

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  1. Fundamental Economic Problem • Scarcity • Condition that arises because society does not have enough resources to produce all the things people would like to have.

  2. Factors of Production • Productive Resources • (1) land “gift of nature” • (2) capital: tools, equipment + factories used in production of goods and services. • (3) Labor: people w/ all of their efforts, abilities and skills.

  3. Three Basic questions a society must address • What to produce? • How to Produce? • For whom to produce?

  4. Economics • Def:The study of human efforts to satisfy wants through the careful use of relatively scarce resources.

  5. Free • TINSTAAFL • No cost to you

  6. Trade Offs • Alternative choices • Alternatives that must be given when one is chosen rather than another.

  7. Opportunity Costs • The cost of the next best alternative use of money, time or resources when one choice is made rather than another.

  8. Production possibility frontier • A diagram representing various combinations of goods and/or services an economy can produce when all productive resources are fully employed.

  9. Resource Utilization Production Possibilities Curve 2-1

  10. Basic requirements for survival. A means of expressing a need. Needs vs. Wants

  11. Goods • Tangible Commodity • Types • Consumer • Capital: manufactured goods to make other goods. • Durable: last three years or longer • Nondurable: last less than three years

  12. Services • Work performed for someone. • Can not be touched or felt.

  13. Consumer • People who use goods or services to satisfy needs and wants. • Consumption: process of using up goods and services to satisfy needs and wants.

  14. Value • Something that has a worth that can be expressed in money.

  15. Utility • Capacity to be useful. • Varies from person to person.

  16. Wealth • The sum of those economic products that are tangible, scarce, useful and transferable from one person to another.

  17. Productivity • The efficient use of productive resources. • Production • Process of creating goods and services.

  18. Circular Flow • Market: location or other mechanism that allow buyers and sellers to deal readily in a certain economic product. • Factor Market: individuals earn money • Product Market: individuals spend money

  19. Spend income Earn Income Individuals Sell scarce resources Buy Goods + Services Circular Flow of Economic Activity Factor Market Product Market Buy scarce resources Provides goods + services Pay for use of resources Receive Revenue Business/Economic Institutions

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