chapter 2 choice opp cost and ppc

chapter 2 choice opp cost and ppc - 2 Basic Principles in...

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2. Basic Principles in the Use of Resources 2-a Resources 2-b Macroeconomics vs. Microeconomics 2-c Rational Choice: Cost vs. Benefits 2-d Production Possibilities: Production, Allocation and Opportunity Costs 2-e Growth In this chapter, we will look at some fundamental terminology and concepts that ecomists use in viewing economic choices. I will describe the various categories of resources and introduce the ideas of efficiency and growth. 2.a Resources Resources are often called the factors of production. . Economists generally categorize resources into Labor, Land, Capital and Entrepreneurship. I have included Technology as well, due to theimportant role it plays that is indistinguishable from other factors of production. The diagram below describes these categories. Diagram 1 Factors of Production Natural vs. Produced Resources Imagine yourself shipwrecked on a desert island. You do a survey to assess what resources you have: o there is a spring with fresh water deep down in a cave o there are fish in the bay o there are coconuts high in the trees o there are numerous palm trees. So, what would you do with them? You are probably pretty hungry, so you consider getting a few fish or maybe a coconut to eat. After a few ridiculous attempts you realize that you are not able to get fish without some way to get out into the water and to capture the fish. But how? You could build some kind of water craft and some kind of trap to Human resources Natural resources Natural Labor Unskilled Labor effort and natural abilities Entrepreneurship Initiative, risk taking Land : land, water, plant and animal life Produced Human capital : individuals’ skills, knowledge and experience , Farm land, livestock fisheries Capital : buildings, factories,machines, tools Technology : inventions, methodologies, scientific knowledge, intellectual property
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catch the fish. Alternately, you may be able to develop swimming and fish catching skills (wasn’t there something you saw on the Discovery Channel?) enabling you to get fish without a boat. In either case, you face the choice of using some of your resources to build some tools and/or increase your skills now so that you can produce more goods in the future. We can think of these things – boats, nets, fishing skills,etc. – as resources, since they are used to produced things, but they are resources that have themselves to be produced. Human Resources: Labor and Entrepreneurship All resources come from nature which we divide into human and other natural resources. We can also divided resources into those that are unimproved and those that have been produced using other resources. For example, Labor is the effort and abilities – both physical and mental- of human beings to produce things. In our natural state, we have certain abilites to do things with our minds and bodies. Economists call this unskilled labor . We can improve our abilities by obtaining knowledge and skills through an educational process. These knowledge and skills are called
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This note was uploaded on 07/17/2011 for the course ECON 102 taught by Professor Jarv during the Summer '09 term at Rio Hondo College.

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chapter 2 choice opp cost and ppc - 2 Basic Principles in...

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