Economics chapters summary
Economics chapter 2
Economics is the efficient allocation of the scarce means of production toward the satisfaction of human wants
The central fact of economics is scarcity. Human wants are unlimited while resources are limited.
Four economics resources: land, labor, capital and entrepreneurial ability
The opportunity cost of any choice is the forgone value of the next best alternative.
The production possibilities curve is a hypothetical model of an economy that produces only two products. For example: Capital goods vs consumer goods
The curve represents the various possible combinations of goods that could be produced if the economy were operating at capacity or full employment.
The law of increasing cost states that as the output of one good expands, the opportunity cost of producing additional units of this good increases.
It is based on three concepts: the law of diminishing returns, diseconomies of scale and factor suitability.
Diseconomies of scale are a new term. As a business firm grows larger, it can usually cut its costs by taking advantage of quantity discounts, the use of expensive but highly productive equipment, and the development of a highly specialized and highly skilled workforce. We call these economies of scale. But as the firm continues to grow, these economies of scale are eventually outweighed by the inefficiencies of managing a bloated bureaucracy, which might sometimes work at cross-purposes. Most of the day could be spent writing memos, answering memos, and attending meetings. Labor and other resources be- come increasingly expensive, and not only are quantity discounts no longer available, but now suppliers charge premium prices for such huge orders. As costs begin to rise, diseconomies of scale have now overcome economies of scale.
Production of capital goods will lead to a rightward shift in the PPC. Improving technology, better and higher capital and labor will also lead to a rightward shift in the PPC.
Economics
Economics is the efficient allocation of the scarce means of production toward the satisfaction of human wants
The central fact of economics is scarcity. Human wants are unlimited while resources are limited.
Four economics resources: land, labor, capital and entrepreneurial ability
The opportunity cost of any choice is the forgone value of the next best alternative.
The production possibilities curve is a hypothetical model of an economy that produces only two products. For example: Capital goods vs consumer goods
The curve represents the various possible combinations of goods that could be produced if the economy were operating at capacity or full employment.
The law of increasing cost states that as the output of one good expands, the opportunity cost of producing additional units of this good increases.
It is based on three concepts: the law of diminishing returns, diseconomies of scale and factor suitability.
Diseconomies of scale are a new term. As a business firm grows larger, it can usually cut its costs by taking advantage of quantity discounts, the use of expensive but highly productive equipment, and the development of a highly specialized and highly skilled workforce. We call these economies of scale. But as the firm continues to grow, these economies of scale are eventually outweighed by the inefficiencies of managing a bloated bureaucracy, which might sometimes work at cross-purposes. Most of the day could be spent writing memos, answering memos, and attending meetings. Labor and other resources be- come increasingly expensive, and not only are quantity discounts no longer available, but now suppliers charge premium prices for such huge orders. As costs begin to rise, diseconomies of scale have now overcome economies of scale.
Production of capital goods will lead to a rightward shift in the PPC. Improving technology, better and higher capital and labor will also lead to a rightward shift in the PPC.
Economics