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Instructor1Commentary - 1 INSTRUCTOR COMMENTARY Text...

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INSTRUCTOR COMMENTARY Text Reference: Chapter 1 and Chapter 19 (pp. 470-490) Introduction to Macroeconomics 1. Chapters 1 and 19 (see reference above) focus on the following important topics: A. The basic economic problem. The basic economic problem is that there are not enough productive resources to enable any society to produce all of the goods and services that the members of that society wish to consume. (text, p. 3) B. Why this problem will never be “solved” and is always with us. Human wants are virtually unlimited while the resources required to produce goods and services are limited. Hence, the basic economic problem exists now and will continue to exist. People’s wants actually seem to grow as fast or faster than their standards of living. This may be the case because there is a “relative” as well as an “absolute” component to desired living standards. As other families or communities have more, the intensity of our desires for goods and services rises as well, as we desire to equal or surpass the standards of living achieved by others. (text, p. 3) C. Why the basic economic problem requires choices to be made. The scarcity of productive resources relative to virtually unlimited wants requires every economic society to make choices about: (1) what to produce (because we don’t have enough resources to produce everything); (2) how to produce (because we want to produce with “maximum efficiency” so that a given amount of resources will produce the greatest possible total output); and (3) for whom to produce (because there is not enough production to give every household all of the goods and services they would like to have). (text, pp. 5-6) D. What constitutes the “resource base” of an economy? The resource base (also called “productive resources” or the “factors of production”) is comprised of all of the human and non-human inputs that can be used to produce goods and services. Human resources 1
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are divided by function (entrepreneurs organize the production process and take risks in exchange for profits, while labor includes the physical and mental talents of the work force offered in exchange for wages and salaries) and non-human resources are divided by origin (being either natural resources –free gifts of nature (called land) —or “man-made” instruments of production (called “capital”). Note that the textbook considers only three categories—land, labor and capital—and then divides labor into two components: labor and entrepreneurship. It will be most helpful if you adopt the framework which recognizes four categories of economic resources, two of which are non-human (land and capital) and two of which are human resources (labor and entrepreneurship). Money is not productive and is not included in the resource base. (text, pp. 3-5) E. What economists do. The major subdivisions of the work that economists do are classified
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Instructor1Commentary - 1 INSTRUCTOR COMMENTARY Text...

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