lectur7 - The Functions of An Economic System These...

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Unformatted text preview: The Functions of An Economic System These Functions Must Be Performed Regardless of the Type of Economic System Practiced Determine WHAT to Produce, and HOW MUCH ◆ Only those commodities for which consumers are willing to pay a price per unit sufficiently high enough to cover at least the full cost of production will be supplied by producers in the long run. (Cost Curves) Determine WHAT to Produce, and HOW MUCH ◆ By offering a higher price, consumers can normally induce producers to increase the quantity of a commodity that they will supply per unit of time. (The SUPPLY Curve) Supply Curve P Quantity Supplied per unit time Supply P P 1 Q Q 1 Organize the Production Process How are we going to produce ? ◆ Refers to the choice of the combination of resources and the particular technique to use (technology) in producing a good or service. (Production Function) Organize the Production Process ◆ A good or service can normally be produced with different input combinations, and different techniques (technology). (Factor Substitution) Organize the Production Process BASIC PROBLEMS : ◆ Which inputs, and which technology do we use? ◆ What quantity of the different inputs do we use? Organize the Production Process Alternative Technologies Must be Evaluated T 1 T 2 T 3 Where T x are alternative production technologies Organize the Production Process Price reflects Quality of output from technology P output x Q output = Total Revenue T 1 Q land x P land = Cost land Q capital x P capital = Cost capital Q labor x P labor = Cost labor Q mgmt x P mgmt = Cost mgmt. Total Cost of T Organize the Production Process In other words, what combination of available resources and technology will produce a given commodity for the the greatest profit ? Organize the Production Process For Example: You want to control downy mildew (blue mold) on your crop. What combination of resources and technology will get you the control necessary to minimize crop losses for the least possible cost ? Organize the Production Process 1.Choose a resistant variety or cultivar. Cost? Vigor? 2.Control environment to minimize incidence and spread....
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lectur7 - The Functions of An Economic System These...

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