 |  Macroeconomics, 9/e Campbell R. McConnell,
University of Nebraska, Lincoln
Stanley L. Brue,
Pacific Lutheran University
Thomas P. Barbiero,
Ryerson University
The Economic Problem: Scarcity, Wants, and Choices
Chapter HighlightsCHAPTER 2- Economics is grounded on two basic facts: (a) wants are virtually unlimited; (b) resources are scarce.
- Resources may be classified as property resources—raw materials and capital—or as human resources—
labour and entrepreneurial ability. These resources constitute the factors of production.
- Economics is concerned with the problem of using scarce resources to produce the goods and services that
satisfy the material wants of society. Both full employment and the efficient use of available resources are
essential to maximize want satisfaction.
- Efficient use of resources consists of productive efficiency (producing all output combinations in the least
costly way) and allocative efficiency (producing the specific output mix most desired by society).
- An economy that is achieving full employment and productive efficiency—that is operating on its production
possibilities curve—must sacrifice the output of some types of goods and services in order to increase the
production of others. Because resources are not equally productive in all possible uses, shifting resources
from one use to another brings the law of increasing opportunity costs into play. The production of additional
units of one product requires the sacrifice of increasing amounts of the other product.
- Allocative efficiency means operating at the optimal point on the production possibilities curve. That point
represents the highest-valued mix of goods and is determined by expanding the production of each good
until its marginal benefit (MB) equals its marginal cost (MC).
- Over time, technological advances and increases in the quantity and quality of resources enable the economy
to produce more of all goods and services—that is, to experience economic growth. Society's choice as
to the mix of consumer goods and capital goods in current output is a major determinant of the future location
of the production possibilities curve and thus of economic growth.
- The market system and the command system are the two broad types of economic systems used to address
the economic problem. In the market system (or capitalism) private individuals own most resources and markets
coordinate most economic activity. In the command system (or socialism or communism), government
owns most resources and central planners coordinate most economic activity.
- The circular flow model locates the product and resource markets and shows the major real and money flows
between businesses and households. Businesses are on the buying side of the resource market and the selling
side of the product market. Households are on the selling side of the resource market and the buying side
of the product market.
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2002 McGraw-Hill Higher Education