7/24/2019 Case Chapter 02
1/18
2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair
Prepared by:
Fernando & YvonnQuijano
2
Chapter
The Economic Problem:Scarcity and Choice
7/24/2019 Case Chapter 02
2/18
CHAPTER
2:TheEcono
micProblem:
ScarcityandChoice
2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 2 of !
THE ECONOMIC PROBLEM:SCARCITY AND CHOICE
FIGURE 2.1The Three Basic Questions
Three basic questions must be answered in
order to understand an economic system:
What gets produced?
How is it produced?
Who gets what is produced?
7/24/2019 Case Chapter 02
3/18
CHAPTER
2:TheEcono
micProblem:
ScarcityandChoice
2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair of !
THE ECONOMIC PROBLEM:SCARCITY AND CHOICE
capitalThings that are themselvesproduced and that are then used in theproduction of other goods and services.
factors of production (or factors)Theinputs into the process of production.Another word for resources.
7/24/2019 Case Chapter 02
4/18
CHAPTER
2:TheEcono
micProblem:
ScarcityandChoice
2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair ! of !
THE ECONOMIC PROBLEM:SCARCITY AND CHOICE
productionThe process thattransforms scarce resources into usefulgoods and services.
inputsorresourcesAnything providedby nature or previous generations thatcan be used directly or indirectly tosatisfy human wants.
outputsUsable products.
7/24/2019 Case Chapter 02
5/18
CHAPTER
2:TheEcono
micProblem:
ScarcityandChoice
2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair " of !
SCARCITY, CHOICE, AND OPPORTUNITY COST
SCARCITY AND CHOICE IN AONE-PERSON ECONOMY
Nearly all the same basic decisions
that characterize complex economiesmust also be made in a simpleeconomy.
7/24/2019 Case Chapter 02
6/18
CHAPTER
2:TheEcono
micProblem:
ScarcityandChoice
2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair # of !
The concepts ofconstrained choiceandscarcityare central to thediscipline of economics.
Opportunity Cost
SCARCITY, CHOICE, AND OPPORTUNITY COST
opportunity costsThe best alternativethat we give up, or forgo, when we makea choice or decision.
7/24/2019 Case Chapter 02
7/18
CHAPTER
2:TheEcono
micProblem:
ScarcityandChoice
2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 7 of !
SCARCITY, CHOICE, AND OPPORTUNITY COST
SCARCITY AND CHOICE IN ANECONOMY OF TWO OR MORE
Education takes time. Timespent in the classroom hasan opportunity cost.
7/24/2019 Case Chapter 02
8/18
CHAPTER
2:TheEcono
micProblem:
ScarcityandChoice
2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 8 of !
SCARCITY, CHOICE, AND OPPORTUNITY COST
Weighing Present and Expected Future Costsand Benefits
We trade off present and future
benefits in small ways all the time.
7/24/2019 Case Chapter 02
9/18
CHAPTER
2:TheEcono
micProblem:
ScarcityandChoice
2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair $ of !
SCARCITY, CHOICE, AND OPPORTUNITY COST
Capital Goods and Consumer Goods
consumer goodsGoods produced forpresent consumption.
investmentThe process of usingresources to produce new capital.
Because resources are scarce, the opportunity cost of every investment in capital is
forgonepresent consumption.
7/24/2019 Case Chapter 02
10/18
CHAPTER
2:TheEcono
micProblem:
ScarcityandChoice
2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair %0 of !
SCARCITY, CHOICE, AND OPPORTUNITY COST
production possibility frontier (ppf)Agraph that shows all the combinations of
goods and services that can beproduced if all of societys resources areused efficiently.
THE PRODUCTION POSSIBILITY FRONTIER
7/24/2019 Case Chapter 02
11/18
CHAPTER
2:TheEcono
micProblem:
ScarcityandChoice
2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair %% of !
SCARCITY, CHOICE, AND OPPORTUNITY COST
FIGURE 2.3Production Possibility Frontier
7/24/2019 Case Chapter 02
12/18
CHAPTER
2:TheEcono
micProblem:
ScarcityandChoice
2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair %2 of !
SCARCITY, CHOICE, AND OPPORTUNITY COST
Unemployment
During economic downturns orrecessions, industrial plants run at less
than their total capacity. When there isunemployment of labor and capital, weare not producing all that we can.
7/24/2019 Case Chapter 02
13/18
CHAPTER
2:TheEcono
micProblem:
ScarcityandChoice
2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair % of !
SCARCITY, CHOICE, AND OPPORTUNITY COST
Economic Growth
economic growthAn increase in thetotal output of an economy. It occurs
when a society acquires new resourcesor when it learns to produce more usingexisting resources.
7/24/2019 Case Chapter 02
14/18
CHAPTER
2:TheEcono
micProblem:
Scarcity
andChoice
2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair %! of !
SCARCITY, CHOICE, AND OPPORTUNITY COST
TABLE 2.2Increasing Productivity in Corn and Wheat Production in the United States,
19352006
CORN WHEAT
Yield Per Acre
(Bushels)
Labor Hours Per
100 Bushels
Yield Per Acre
(Bushels)
Labor Hours
Per 100 Bushels
19351939
19451949
19551959
19651969
19751979
1981198519851990
19901995
1998
2001
2006
26.1
36.1
48.7
78.5
96.3
107.2112.8
120.6
134.4
138.2
145.6
108
53
20
7
4
3NAa
NAa
NAa
NAa
NAa
13.2
16.9
22.3
27.5
31.3
36.938.0
38.1
43.2
43.5
42.3
67
34
17
11
9
7NAa
NAa
NAa
NAa
NAa
7/24/2019 Case Chapter 02
15/18
CHAPTER
2:TheEcono
micProblem:
Scarcity
andChoice
2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair %" of !
SCARCITY, CHOICE, AND OPPORTUNITY COST
THE ECONOMIC PROBLEM
Recall the three basic questions facingall economic systems:
(1) What gets produced?(2) How is it produced?(3) Who gets it?
Given scarce resources, how exactlydo large, complex societies go aboutanswering the three basic economicquestions?
7/24/2019 Case Chapter 02
16/18
CHAPTER
2:TheEcono
micProblem:
Scarcity
andChoice
2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair %# of !
ECONOMIC SYSTEMS
LAISSEZ-FAIRE ECONOMIES: THE FREEMARKET
laissez-faire economyLiterally fromthe French: allow [them] to do. An
economy in which individual people andfirms pursue their own self-interestswithout any central direction orregulation.
marketThe institution through whichbuyers and sellers interact and engagein exchange.
Some markets are simple and others are complex, but they all involve buyers and sellers
engaging in exchange. The behavior of buyers and sellers in a laissez-faire economy
determines what gets produced, how it is produced, and who gets it.
7/24/2019 Case Chapter 02
17/18
CHAPTER
2:TheEcono
micProblem:
Scarcity
andChoice
2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair %7 of !
ECONOMIC SYSTEMS
Distribution of Output
The amount that any one householdgets depends on its income and wealth.
Incomeis the amount that a householdearns each year. It comes in a number offorms: wages, salaries, interest, and thelike.
Wealthis the amount that householdshave accumulated out of past incomethrough saving or inheritance.
7/24/2019 Case Chapter 02
18/18
CHAPTER
2:TheEcono
micProblem:
Scarcity
andChoice
2007 P ti H ll B i P bli hi P i i l f E i 8 b C d F i
ECONOMIC SYSTEMS
MIXED SYSTEMS, MARKETS, ANDGOVERNMENTS
ven staunch defenders of the free enterprise system recognize that market systems are
not
perfect. !irst, they do not always produce what people want at lowest cost"there are
inefficiencies. Second, rewards #income$ may be unfairly distributed, and some groups maybe left out Third periods of unemployment and inflation recur with some regularity
The differences between commandeconomies and laissez-faire economies intheir pure forms are enormous. In fact,these pure forms do not exist in the world;all real systems are in some sensemixed.