Understanding Capitalism's 'Soul' in Production: Limited Resources & Efficient Allocation, Study notes of Introduction to Macroeconomics

Download Understanding Capitalism's 'Soul' in Production: Limited Resources & Efficient Allocation and more Study notes Introduction to Macroeconomics in PDF only on Docsity! Limits Alternatives Choices The Production Possibilities Model (Pages 10-20) Patrick Yanez Society’s Economizing Problem • Scarce Resources R C i• esources ategor es: – Land: natural resources – Labor: physical & mental abilities – Capital: all manufactured “aids” to produce i.e.: tools, factories, stores, etc. - Entrepreneurial ability: combines resources, makes strategic decisions, take risks, innovates Patrick Yanez Is there a model that shows the “soul” of capitalism? Patrick Yanez The Production Possibility Curve Model Philosophical Assumptions: 1) Scarce resources 2) Unlimited needs and wants Technical Assumptions: 1) Full employment 2) Fixed resources 3) Fixed technology 4) Two goods Patrick Yanez Production Possibilities Model A “schedule” or a “table” Type of Product Production Alternatives A B C D E Pizzas (in hundred thousands) 0 1 2 3 4 Industrial Robots 10 9 7 4 0 (in thousands) Let’s Plot now these Points in a Graph Patrick Yanez … PPC Model 1st Conclusion Opportunity Cost Patrick Yanez PRODUCTION POSSIBILITIES Limited Resources meansbotsbots a limited output.... R ob R ob At any point in time a full employment full Pizzas , - , - production economy must sacrifice some of product X to obtain more of product Y. Patrick Yanez PPC Model 2nd Conclusion Law of Increasing Opportunity Costs nd s) nd s) In a full-employment, full-production, two-good economy, it will cost more and more of one good to get an extra unit of ho us an ho us an the other good bo ts (t h bo ts (t h R ob R ob Patrick Yanez Pizzas (hundred thousands) U i th PPC d ls ng e mo e to illustrate “economic growth” Patrick Yanez Two Examples of Economic Growth PRODUCTION POSSIBILITIES FAVORING PRESENT GOODS FAVORING FUTURE GOODS e Fu tu re e Fu tu re Fu tu re Fu tu reCURRENT CURVE CONSUMPTION ds fo r t he ds fo r t he ds fo r t he F ds fo r t he F FUTURE CURVE FUTURE CURVE G oo d G oo d G oo d G oo d CONSUMPTION CURRENTCURVE Patrick Yanez Goods for the Present Goods for the Present