The Economizing Problem The need to make choices

The Economizing Problem: The need to make choices because economic wants exceed economic means. - Relates to scarcity, limited resources and trade off’s Your budget line models the economizing problem.

• Does society have an economizing problem? – YES!! • We have limited resources…. • What are these limited resources? – ALL the FACTORS that go into producing any good or service.

• FACTORS OF PRODUCTION – Land: “Gifts of Nature” • Rents – Labor: Physical actions and mental abilities that people contribute to the production of goods and services. • Wages – Capital: All manufactured aids used in producing goods or services. • Interest • Investments: Pays for the production and accumulation of capital goods. – Entrepreneur: A person that identifies a need or a want and properly combines all other factors of production to make profit, bearing risk.

• PPC: Production Possibility Curve – Assume: • Full employment: Economy is employing all of its available resources • Fixed resources: Quantity and quality of the factors of production are fixed. • Fixed technology: The method used to produce the product/ service is constant. • 2 goods: Consumer (satisfies our wants directly) and Capital (satisfies indirectly by making possible more efficient production of consumer goods) – Short term vs. long run.

A Pizza: Robots: B C D E

Why is the line not straight? • LAW OF INCREASING OPPORTUNITY COST:

What affects the PPC?