Defining economic choices can be done with the help of scarcity.
The core economic issues need to be solved.
How nations deal with these issues.
In early 2007, water was in the news a lot.
In the first chapter we explore the nature of scarcity and the good news is that NASA discovered some of the choices we have to make.
We have limited resources and what to produce.
How to make the goods and services we choose.
Both of these are major economic stories.
Should the government allow the best technologies to be used?
The list of projects we want to complete is always longer than the private banks' alone, or should the government try to find more money, resources, or time?
NASA unveiled plans yesterday to set up a small part of a long-range plan to send astronauts to Mars.
The settlement of astronauts at the south pole of the moon would be the first step in an ambitious travelers journey to the moon around 2020 and would provide a haven plan to resume manned exploration of the solar system.
Initial stays of a week would make water and rocket fuel.
NASA plans to spend $100 billion to establish a manned station on the moon and then on to Mars.
The economy is ours.
"The economy" refers to the grand sum of all our production and consumption activities.
What the economy produces is what we consume.
The reference is to the collective earnings of all the Joneses if someone tells you that the Jones family has an annual income of $42,000.
The grand total of everyone's income is what the reference is to when someone reports that the nation's income is 14 trillion per year.
"Meaningless statistics" are just a summary of our collective market behavior.
If we insist on driving cars rather than taking public orker Collection 1975 Dana Fradon from cartoonbank.com.
People think economics is dull.
Economics is about human behavior, how people decide to use scarce resources and how those decisions affect market outcomes.
The economy will produce millions of cars and consume a lot of oil.
Billions of dollars of military hardware are produced by the economy to satisfy our desire for national defense.
The collective behavior of 300 million people in the U.S. economy is reflected in the output of the economy.
We may not like the output of the economy.
There is a link between individual action and collective outcomes.
We can't blame someone else for the transportation choices we made if the highways are congested and the air is polluted.
If we are disturbed by the size of our military arsenal, we must still accept responsibility for our choices, even if we didn't vote.
We have the option of reallocating our resources.
A different outcome can be created the next day, month or year.
We can change economic outcomes, but we can't have everything we want.
You can only buy so much if you have $20 in your pocket.
The economy's output is limited.
The resources available for producing goods and services set the limits in this case.
Everyone wants better transit systems, better housing, and a new car.
We want to bring safe water to the world's poor.
States can't produce everything people want.
Like every other nation, we have to find sources to satisfy our needs.
There isn't enough resources available to satisfy all of our desires.
We needed paper, printing presses, a building, and a lot of labor to produce this textbook.
We needed people with good ideas to put it together.
We need more than a textbook, a classroom, a teacher, and a computer to produce the education you're getting in this class.
We can't produce anything without factors of production.
All natural resources are referred to as the first factor of production, land.
Labor has many dimensions.
It's not a question of how many bodies there are.
The skills and abilities to produce goods and services are referred to as a factor of production.
The quantity and quality of human resources are included in the "labor" factor.
Capital is the third factor of production.
The residents of fishing villages braid huge fishing nets.
The nets are for structures.
The nets are a factor of production when it comes to obtaining the final goods.
Capital inputs include blast furnaces used to make steel and desks used to equip offices.
A farmer with 10,000 acres, 12 employees, and six tractor can grow more crops than a farmer with half those resources.
There is no guarantee that he will.
The farmer with less resources may have better ideas about what to plant and when to harvest.
It's more than just what resources you have, it's also how well you use them.
The assem arrives.
The person who sees the opportunity for new or better resources to be used to produce ucts brings together the resources needed for producing them.
If it weren't for new or improved products.
Farmers wouldn't be able to milk their cows by hand without entrepreneurship.
If someone hadn't thought of a way to miniaturize electronic circuits, you wouldn't have a cell phone.
The market and government debate the role of entrepreneurs in economic progress.
Schumpeter argued that free markets unleash the "animal spirits" of entrepreneurs, propelling innovation, technology, and growth.
Critics of government regulation argue that government interference in the marketplace can stifle animal spirits.
There is a limit to how much an economy can produce.
Less than 500 acres of land won't produce as much.
The US has over 300 million people.
An abundance of "raw" resources gives us the ability to produce a lot of output.
It isn't enough to have more production capacity.
We need more resources to build houses, make better movies, and colonize the moon.
The study of how people use scarce resources.
Chrysler decides among competing uses.
We have to choose one use over another when using scarce labor, land, and capital resources.
We give up the chance to use scarce resources in other ways when we use them in one way.
If we use more resources to explore space, we will have less resources to make goods.
A free lunch has an opportunity cost.
Goods or services that are forgone to get something else are desired by the resources.
Goods and services have an opportunity cost.
The resources used to make a free lunch could have been used to make something else.
The lunch could have been used to make something else.
A trip to Mars costs more.
The economics class has an opportunity cost.
The economics class building can't be used to show movies at the same time.
Your professor can't teach and fix motorcycles at the same time.
Producing less of other goods is implied by the decision to use scarce resources for an economics class.
The cost to read this book is high.
The cost isn't measured in dollars and cents.
The cost is measured in terms of alternative activity.
Opportunity Cost can be used for alternative uses of your time.
The best use of your time is to read this text.
The opportunity cost of reading this book is if you don't watch your favorite TV show.
You gave up something to do this assignment.
The benefits of studying will outweigh the cost.
This isn't the best way to use your time.
Defense spending is one of the persistent national choices about resource use.
American citizens favored an increase in military spending after the 9/11 terrorist attacks.
National defense resources must be taken from other industries.
The share of output isn't available to build schools, program computers, or teach economics.
Land, labor, capital, and entrepreneurship devoted to producing military hardware aren't changed in recent decades, visit the available for producing civilian goods.
The "guns versus butter" dilemma can be found at www.cbo.gov and search for nations.
The opportunity costs can be shown easily.
A nation can only make two things, trucks and tanks.
Assume that labor is the only factor of production needed to produce either good.
Land, machinery and other production factors are needed in actual production, but they are not important for the moment.
We have a total of only 10 workers who can produce either trucks or tanks.
The answer will be affected by opportunity costs.
No labor will be available to assemble tanks if we use all 10 workers to produce trucks.
We don't know how many trucks could be made with 10 workers or how many tanks would be forgone.
We need more information about how many workers are required to make trucks and tanks.
The can can make up to five trucks per day.
We use alternative combinations of able workers, leaving no for tank assembly.
If we want tanks, we have to cut back on final goods and services that truck production.
By using all available resources and technology.
2 workers are available for other uses.
If resources are limited, opportunity tanks are the cost of additional trucks.
The forgone assembled.
We can build two tanks a day if we employ the remaining 2 workers.
We would end up with four trucks and two tanks.
The fifth truck we could have produced but didn't.
The nature of opportunity costs becomes apparent as we move down the rows.
The loss of truck output is implied by each additional tank built.
The loss of some tank output is implied by every truck produced.
The production possibilities curve of Figure 1.1 shows the trade-offs between truck and tank production.
A production possibilities curve indicates how much of another will be produced.
A different combination of trucks and tanks could be produced in a single day using all available resources.
We're giving up one truck to get two tanks assembled.
One truck that is given up is the opportunity cost of those tanks.
A production possibilities curve is a summary of production possibilities.
It shows the implied opportunity costs of each choice, as well as the alternative goods and services we could produce.
There is a limit to how much we can produce in a given time period.
Reducing the potential production of another good will allow us to get additional quantities of any desired good.
Another limitation on our choices is reflected in the shape of the production possibilities curve.
As we move along the production possibilities curve, opportunity costs increase.
We get two tanks when we cut truck output from five to four.
When we cut truck production further, we only get one tank per truck.
The opportunity cost is increasing.
The process of increasing opportunity cost continues.
The production possibilities curve shows the increases in opportunity cost.
It's hard to move resources from one industry to another.
It's easy to make tanks out of trucks.
Resource don't adapt so easily in the real world.
Workers who assemble trucks may not have the same skills.
We start getting fewer tanks for every truck we give up as we transfer labor from one industry to another.
In order to get more of a particular good, we must give up other goods and services.
The law is not based solely on the flexibility of individual workers.
Tank assembly requires more capital than truck assembly.
In a pinch, wheels can be mounted on a truck almost completely by hand.
Capital may be limited as we move labor from truck to tank assembly.
Consider North Korea's decision to maintain a large military.
The population of North Korea is 24 million.
It needs to allocate 16 percent of its resources to feeding, clothing, and equip its military forces.
There aren't enough resources available to produce food at The International Institute.
Without adequate machinery, seeds, fertil Strategic Studies compiles data on izer, Korea's farmers can't produce enough food to feed the population.
The opportunity cost of "guns" in Korea is a lot.
40 percent of U.S. output was devoted to the military in 1944.
Civilian goods were hard to find.
Small quantities of butter, sugar, and gasoline were given out.
The golf balls were rationed.
The United Nations has been crippled by a severe food shortage.
Despite international pressure, North Korea is building at least two new launch facilities for people in need, according to Masood Hyder.
He said that his organization can feed less than 100,000 people because of the conclusion by the U.S. intelligence agencies that North Korea intends to test-fire a second missile capable of kindergarten-age children and pregnant women.
Permission was granted for the post to be excerpted.
Some orphanages are serving two meals a day instead of three because of the shortages.
Resources used for the military aren't available for producing food, which is why North Korea can't feed itself.
Basic food production became more difficult as the share of military output increased.
Figure 1.3 shows how military and civilian resources are divided.
The United States spends $530 billion on national defense, but only absorbs 4% of total output.
The opportunity costs of the war in Iraq were less painful because of this.
16 percent of North Korea's output is devoted to the military.
There is an opportunity cost of maintaining an army.
Some of the choices on the production possibilities curve are not desirable.
This condition is satisfied by every point of the PPC.
We use all available resources in the best way we know how at every point on the curve.
We don't know if we'll always use resources so efficiently.
The actual output will be less than the potential if we're inefficient.
Workers loaf on the job in the real world.
They call in sick and go to a baseball game.
Managers don't always give the clearest directions.
Students fail to put forth their best effort on homework.
We can't achieve maximum production if we have this kind of slippage.
There were inefficiencies in centrally planned economies.
Everyone got a job regardless of how much output he or she produced.
As many as 40 percent of the workers were superfluous.
Many of the factories were sold to private investors when communism collapsed.
Many of the state-owned enterprises in Europe and Latin America have been sold in the hopes of increasing efficiency.
In 2003 as many as 8 million Americans were looking for work, but no one hired them.
Eliminating unemployment and keeping the economy on its production possibilities curve is a basic challenge for policymakers.
The United States was close to this goal in 2007.
Figure 1.4 shows an output mix that everyone would like.
All output combinations that are outside the production possibilities curve are not possible with the available resources and technology.
Population growth and immigration increase our supply of labor.
The stock of available capital increases as we build factories and machinery.
Entrepreneurs can find new ways to make old products.
Potential output is increased by all these changes.
Living standards decline as the population grows.
A nation's output choices are defined by production possibilities.
Every nation must make some basic decisions from these choices.
Each point on the production possibilities curve represents a different mix of output.
The point we choose affects the mix of output.
How much butter and how many guns are produced by that choice.
The production possibilities curve doesn't tell us which mix of output is best, it just lays out a menu of options.
We have to pick out the one and only mix of output that will be produced.
Every nation must make this decision.
It is important to make decisions about how to produce.
Someone has to make a decision about which production method to use when making goods and services.
The How decision is a question of social values as well as efficiency.
The mechanics of choice answer to the questions of what, how, and for whom.
In 1776, Adam Smith had an answer.
He referred to the invisible hand as a characterization of the way markets work, not a creature from a science fiction movie.
Consider how many cars will be produced in the United States.
There isn't an auto czar who dictates production.
General GM can't make such a decision.
Millions of consumers signal their desire to have a car by browsing the internet, visiting showrooms and buying cars.
Producers see the potential to earn more profits from their purchases.
They will increase auto output.
Profits will disappear if consumers stop buying cars.
Reducing output, laying off workers, and even closing factories are some of the ways producers will respond.
Consumers and producers interact to determine how many cars are produced.
The invisible hand is moving us along the production possibilities curve.
The mix of output will include more cars and less other goods if consumers demand more.
If auto production is scaled back, the displaced autoworkers will produce other goods and services, which will change the mix of output in the opposite direction.
It doesn't require direct contact between consumers and producers to market prices and sales.
Communication is transmitted by market prices and sales.
You can buy something if you have enough money.
If enough people do the same thing, the total sales of that product will go up and the price will go down.
Seeing sales and prices rise, producers will want to exploit their profit potential.
They will attempt to acquire a larger share of available resources and use it to produce the goods they want.
That's how the invisible hand works.
The market mechanism can answer the question.
Producers look for the lowest-cost method to maximize their profits.
They can identify the cheapest method by observing prices.
The FOR WHOM question can be solved by the market mechanism.
The highest bidder gets goods from the market.
People who are willing to pay the most for a product are more likely to get it.
He believed that the price signals and responses of the marketplace were market mechanisms.
Adam Smith favored a laissez-faire policy.
John Maynard Keynes offered a less drastic solution.
He conceded that the market was efficient in organizing production and building better mousetraps.
Individual producers and workers have no control over the economy as a whole.
As producers rushed to increase output at the same time or throttled back production in Malthus, Keynes, and Marx, they visited a herdlike manner.
Keynes thought that the government could act like a pressure gauge, letting the Federal Reserve Bank of San Francisco off steam or building it up as the economy needed it.
The market could live up to its expectations if the government kept Francisco at www.frbsf.org.
While assuring a stable, full-employment environment, the government might also be able to remedy excessive inequalities.