ECONSection1 - Economics200304:Section1:IntroductionPage1 SECTION 1 INTRODUCTION FOUNDATION OF ECONOMICS Scarcity Scarcity:,theremaybe

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Economics 2003-04: Section 1: Introduction  Page 1 SECTION 1: INTRODUCTION FOUNDATION OF ECONOMICS Scarcity Scarcity: although output is limited by the technology available, there may be  enough resources to satisfy basic needs for most humans, but there will never be  enough resources to satisfy all peoples wants and desires. What goods and services should be produced with the resources available? How can factors of production be used efficiently to produce what is chosen? For whom should these goods and services be produced? Factors of production include:  Land or Natural Resources: not man made: land, minerals, wood, fish. Labour: human resources determined by population, age, skill and training. Capital: man made tools such as buildings, equipment, and machinery Entrepreneurship: undertake the risk of organizing and combining factors for  production. Opportunity cost: the cost of using a resource measured in terms of the sacrifice  foregone in the next best alternative.  When the best alternative is chosen from a  range of alternatives the second best choice is the opportunity cost. Production Possibility Curve or Frontier Point B on the PPF shows the maximum that can be  produced with existing resources and technology, it is  a point of productive efficiency. The negative slope of the PPF reflects basic scarcity The law of diminishing returns implies a convex PPF:  as resources are transferred from one use to another,  the increment in output becomes smaller, the opportunity cost larger.  Resources are being released in the wrong combination The resources being released are less and less suited to the new use Point A inside the frontier is productively inefficient: more of one good could be  produced without sacrificing any of the other: Under market systems it is called unemployment Under central planning it is called inefficiency. Point C can only be reached through:  Trade The discovery of more resources Increased labour productivity from greater education and training Production Possibility Frontier Clothing Oranges A B C
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Page 2  Economics 2003-04: Section 1: Introduction Increased capital productivity from an increase in technological knowledge. Populations were fairly limited until the agricultural revolution and hunter gatherers  were forced to do everything for themselves. Once agriculture developed people were able to specialize in the things they were 
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This note was uploaded on 04/23/2011 for the course ECON 100 taught by Professor Mr.smith during the Spring '11 term at DeVry Sandy.

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ECONSection1 - Economics200304:Section1:IntroductionPage1 SECTION 1 INTRODUCTION FOUNDATION OF ECONOMICS Scarcity Scarcity:,theremaybe

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