Issue 53: Macroeconomics: Mixed Economy: Resources, Goals, and Institutions

What are the resources of our economic system? What kinds of payments are made for their use?

What goals do we want our economy to achieve? Can we trade various goals against one another? Are there cost of doing so?

Why is our economic system called "capitalistic"? What social, political, and economic institutions constitute the basis of capitalism? How can we depict the flow of goods and resources in a capitalistic system?

_________________________________________________________________________________
 The existence of alternative uses implies that there is scarce resource and choices must be made concerning its use.

Using a set resources to produce one thing requires giving up something else.

Factor of Production: Basic Components "inputs", that every society uses to produce goods and services "outputs"
Material resources: Natural resources, raw materials, machinery and equipment, buildings, and transportation and communication facilities.
-Land:
          Means all nonhuman or "natural" resources. Gifts of nature. Natural resources consist of physical endowment upon which any civilization is built.
          Have little economic value until a society is willing and able to develop them.
          Ex: Oil: Natural nuisance until 1850s but now it makes, fuel, lubricants, plastics, and chemicals and thus now value.
-Capital
          Manufactured good that is used to produce other goods. Produced means of further productions. Produce: Capital is created by human resources working with material resources.
          Ex: Timber--Natural, but Lumber is Capital.
          Capital goods or investment goods: Things used by business.
          Tools, Machinery and equipment, factory buildings, freight cars, and office furniture.
Human resources: Productive physical and mental abilities of people.
-Labor
          Make land and capital productive
          Effort or activities of people hired to assist in the production of goods and services.
          Service worker are providing by working.
-Entrepreneurship (Ownership)
          Production of goods or services, the other 3 factors must be organized and combined.
          Someone who risks his or her money in a venture in hopes of making a profit.
          Assembles the factors of Productionn, raise the necessary money, organizes the management, makes basic business policy decisions, and reaps the gain of success or losses of failure.


Scarcity:
A good that isn't scarce is a "free good", aquired without sacrifice: without giving something up.

Choice and Cost:
Choice thus entails costs
Cost of any choice is the value of the alternative forgone in making that choice
Opportunity Cost: Value of a benefit that is forgone by choosing one alternative rather than another
     Measured by what an economic entity is not doing but could be doing
     The opportunity cost of any decision is thus the value of the sacrificed alternative.

Rent: Supply land and other natural resources receive a payment
Interest: Supply financial capital, money that business firms borrow for the purchase of physical capital
Wages: A payment workers receive after selling their labor. (Salaries and Commissions)
National Income: Yearly sum of rents, interest, wages, and profits for a country


Resource: Payment
Land: Rent
Capital: Interest
Labor: Wages
Entrepreneurship: Profit
Annual Total: National Income


Specialization: Division of productive activities among people and regions with the result that no one person or area is self-sufficient. AKA. Division of Labor

Adam Smith, a Scottish philosopher: Founder of Modern Economics.
-Allow for the development and refinement of skills
-Eliminate the waste of time that is entailed in going from one job to another
-Simplify human tasks, thus permitting the introduction of laborsaving machines.

Goals of Our Economic System:
Efficiency: Full Employment of Resources
Efficiency is the best use of available resources to attain a desired result.
    -Technical Efficiency: When it is producing maximum output by making the fullest possible utilization of available inputs. Available resources are fully employed in the most effective way
    -Economic (Allocative) Efficiency: When economy is producing a combination of goods and services that people prefer due to incomes.