Economics; Another Perspective
Economics is the study of the choices made by people who are faced with scarcity.
Scarcity is a situation in which resources are limited but can be used in different ways;
so one good or service must be sacrificed for another.
Society’s Choices
The decisions of producers, consumers and government determine how an economic
system answers three fundamental questions:
What products do we produce?
How do we produce these products?
Who consumes the products?
Factors of Production
Factors of production are the resources that are used to produce goods and services:
Natural resources:
The things created by acts of nature such as land, water, mineral, oil and gas
deposits, renewable and nonrenewable resources.
Labor:
The human effort, physical and mental, used byworkers in the production of goods
and services.
Physical capital.
All the machines, buildings, equipment, roads and other objects made by human
beings to produce goods and services.
Human capital:
The knowledge and skills acquired by a worker through education and experience.
Entrepreneurship:
The effort to coordinate the production and sale of goods and services.
Entrepreneurs take risk and commit time and money to a business without any
guarantee of profit.
The Production Possibilities Frontier
(PPF)
The PPF curve shows the possible
combinations of goods and services
available to an economy, given that all
productive resources are fully and efficiently
employed.
When the economy is at point i, resources
are not fully employed and/or they are not
used efficiently. Point gis desirable because
it yields more of both goods, but not
attainable given the amount of resources
available. Point dis one of the possible
combinations of goods produced when
resources are fully and efficiently employed.
Scarcity and the PPF
To increase the amount of farm goods by
10 tons, we must sacrifice 100 tons of
factory goods.
The PPF curve is bowed out because
resources are not perfectly adaptable to the
production of the two goods. As we
increase the production of one good, we
sacrifice progressively more of the other.
