Chapters 1 & 2: The Economizing Problem
Full employment is the use of all available resources.
1. Full production is the employment of resources so that they provide the maximum possible
satisfaction of our material wants. Full production includes two kinds of efficiency:
a) productive efficiency (P = AC) is the production of any particular mix of goods/services
in the 2least costly way
b) allocative efficiency (P (= MB) = MC) is the production of that particular mix of
goods/services most wanted by society
2. A production possibility curve/frontier represents some maximum combination of two
products, which can be produced if full employment and full production are achieved.
3. The opportunity cost of a specific good is the amount of other product, which must be
foregone or sacrificed. The law of increasing opportunity costs states that the more of a
product, which is, produced the greater is its opportunity cost.
4. Economic growth is the ability of an economy to produce a larger total output as a result of
increases in the supplies of resources, improvements in resource quality, and/or technological
advance.
5. A circular flow model portrays an exchange between businesses and households in two
markets:
a) resource of factor market: households supply factors of production or resources (labor,
capital, land, entrepreneurship) in exchange for resource payments (wages, interest, rend
and profit or WIRP)
b) product market: businesses supply finished goods/services in exchange for money from
households