PPT 2

• Economic problem

  • What to produce?
  • How much to produce?
  • How to produce?
  • For whom to produce?
• Economic resources

  • Land
  • Labor
  • Capital
  • Entrepreneurial ability
• Land


  All-natural resources ("gift of nature") used in the production processes, such as arable land, forests, minerals and oil deposits, and water resources
• Labor


  Physical and mental talents of individuals used in producing goods and services
• Capital


  Human-made resources (buildings, machinery and equipment, storage facility, and others) used to produce goods and services
• Entrepreneurial ability


  The human talents that combined the other resources to produce a product, make decisions, innovate and bear risks
• Budget line


  A schedule or curve that allows various combinations of two products a consumer can purchase with a specific money income
• The Budget line for the budget constraint shows the combination two (2) products that can be purchased, given the prices of the products and the consumer's money income
• All combinations on or inside the budget line are attainable combinations from the income while combinations beyond the budget line are unattainable

  
• Production Possibilities Frontier


  A graph showing the different combinations of goods or services that can be produced in a full employment, full production economy where available supplies of resources and technology are fixed
• Law of Increasing Opportunity Cost


  As the production of goods increases, the opportunity of increasing an additional unit rises
• Production Possibilities Curve


  A curve showing the different combinations of goods or services that can be produced in a full employment, full production economy where available supplies of resources and technology are fixed
• Type of Product

  • Healthcare
  • Education
• In the case of services to the public where social welfare is considered i.e. education and healthcare, decision will be based on what is the priority
• Decision may be based on normative or positive analysis, depending upon the circumstances an individual