the economizing problem is essentially one of deciding how to make the best use of This is a topic that many people are looking for. bluevelvetrestaurant.com is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, bluevelvetrestaurant.com would like to introduce to you Ch. 1-Part 3: The Economizing Problem. Following along are instructions in the video below:
We look at a societys economizing problem. Lets first develop a clear understanding understanding of an individuals economizing problem. The individuals economizing problem exists.
Because of the of a limited income and unlimited once when an individual such as yourself is trying to decide whether or not to purchase an item. They must consider several factors one the trade offs. They made to obtain that money usually time the opportunity cost or the next best thing they could have purchased with those same dollars or three.
When given all of the facts. What is the best choice possible not only at that moment. But also for the future.
This problem isnt stagnant either when given the same choices later down the road. An individual wont necessarily make the same choice especially if theres been a change in their income for the economy. As a whole.
The economizing problem exists. Because resources are scarce not income resources refers to inputs that are used in the production of other goods and services. There are three primary forms of resources and a fourth that must be considered.
But isnt always considered a part of the core resources land refers to all natural resources or gifts of nature trees crops soil coal really anything that exists in the world without human help labor refers to the human factor. People who work and therefore contribute to the production of a good or service. Whether it be physical or mental work capital refers to all manufactured inputs in other words items which assists humans in making other items.
Examples. Include tractors tools or training and education capital is not money. Ill say that again capital is not money money isnt even considered a resource.
But more on that later the last one and the one is not always considered as part of the economizing problem is entrepreneurial ability make sure that you dont confuse a successful business person with an entrepreneur someone can be a successful businessperson and make quite a bit of money. But that doesnt necessarily mean that he or she is an entrepreneur. An entrepreneur is someone that takes initiative makes decisions innovates and takes risks on how they organize and utilize.
The other three resources to examine how a nation uses their limited resources economists use the production possibilities model the production possibilities model shows the maximum combinations of two goods that can be produced with the resources available today to create a production possibilities model. It is necessary to assume a few things first the nation is at full employment full employment means that we are using all available resources not just labor and they are being used to their maximum potential second the amount of resources available are fixed. So theres no population change.
No discovery of new oil fields. This is necessary because with each change. The model is no longer accurate third technology is considered stagnant each time the access to technology.
Changes for good or bad. The models. No longer accurate and finally using two goods is a simplification you will still see the concepts shown by the model without making it any more complicated oftentimes.
The two goods are general categories of two goods rather than specific goods. So that the production possibilities model shows the trade off between choosing those goods to start a sample model. We must first create a production possibilities table to create our sample model.
We will use the two goods pizza and robots this production possibilities table shows the combinations of pizza and robots that can be produced with the resources available. We are able to interpret from the table that at point a the economy can produce 10000. Robots by using all of the resources to produce those robots.
But they will not be able to make any pizza at point b. The economy is able to produce a hundred thousand pizzas. But they have to give up some robots to get those pizzas and therefore can only make nine thousand robe.
This is because some resources are reallocated to producing pizzas instead of robots as the economy continues to move towards point ii. The number of pizzas increases while the number of robots decreases illustrating that the opportunity cost of more pizzas is lost robots next we use the production possibilities table to construct our model by plotting the points on a graph and connecting the points with a single line this line is called the production possibilities curve or ppc and it shows us the infinite combinations of pizza and robots. We could make within our given economy producing anywhere along the blue ppc line means that the economy is producing the maximum amount of pizzas and robots and this implies that the economy is efficient when the economy is efficient.
The only way to get more of one good is to give up some of the other because all resources are already being utilized. There is no way to allocate the resources differently without giving up some of another good the economy can produce at any point inside the ppc. But doing so means that the economy is inefficient that means that the economy has idle resources and or resources are not being used to their capacity when inside the ppc.
It is possible to get more of both goods by utilizing idle resources or using resources to their capacity. A simple example of why an economy might be at point u. Is one in which a high level of cyclical unemployment exists.
Because of an economic recession. There are individuals that can and want to produce goods. But theres just no jobs available any point to the right of the ppc represents a combination of robots and pitas that is impossible to create with the current resources.
The ppc is concave because of the increasing opportunity costs. If the opportunity costs were constant. The ppc would be a straight line the economy decides how much pizza to produced similarly to how a person makes their decisions.
The economy must compare the marginal benefit to the marginal cost of producing peace. The optimal amount of pizza is where the marginal benefit is equal to the marginal cost of producing another unit of pizza. This decision is made differently depending on the type of economy you live in as i said before in order for a model to remain accurate.
We had to make some assumptions. But what happens when we begin to change those factors such as amount and quality of available resources. An economy grows.
When there are more resources and or better resources. Available. With more resources.
Available. The economy can produce more total goods and services. When resources are better or technology.
Improves. It means that the economy can use fewer resources to produce the same output. Thereby freeing some resources to increase the output of other goods.
And increasing the total goods and services produced the increase in supplies of resources improvements in resource quality and technological advances that occur in a dynamic economy move. The production possibilities curve outward to the right allowing the economy to have larger quantities of both types of goods graphically economic growth is shown as a shift to the right of the ppc shifting the ppc to the right shows that more robots and pizzas can now be produced at every point on the ppc points. That used to be unattainable are now attainable this means that the economy will now have a higher standard of living.
Where the economy chooses to produce on the ppc today largely determines. The amount of economic growth. That they will experience in the future goods for the future include goods like capital education and research and development when we produce those kinds of goods today.
They dont do anything to satisfy needs. And once today. But they will help to better satisfy future wants and needs by enabling the economy to produce a greater amount of present goods in the future present goods are goods that satisfy needs today and do nothing for us in the future.
Most of the goods that we buy our present goods examples can include food or gasoline for your car as a last note for chapter 1. It is important for us to remember a few very important things as we continue in a study of macroeconomics and something youll be reminded of along the way first avoid bias. Its often difficult to put aside biases.
But it is important in order to perform an objective evaluation of the economy second be aware of loaded terminology. The news. Often uses loaded terminology to catch the audiences interest.
But we have to be careful of the exaggerations this often implies third be wary of the fallacy of composition fallacy of composition often occurs when we assume that what benefits one person will also benefit others for example. When theres a traffic jam on the highway. Itll benefit me to take the back roads.
If i am. The only one who does that if everyone gets off of the highway and tries to take the back roads. Then the back roads have become very congested and it could actually take longer fourth.
It is important to not draw conclusions about cause and effect relationships. If a person is flipping a coin and they get heads six times in a row. It does not increase or decrease their chances of flipping.
Another heads superstitions are also great examples of the post hoc fallacy and finally the most tempting. Pitfall is correlation not causation. Often times events are related or correlated.
But it doesnt mean that one actually caused the other a great example that even teachers are guilty of is the positive relationship between education and income. It does not tell us which causes the increase in the other or which one is the dependent variable and which one is the independent variable. It may be that the increase in income that occurs with increased education is due to some other third factor.
Theres just no way of knowing. Only that theyre related. .
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