Assumed 3 decision makers- consumers (households) – that sell land, labor, capital entrepreneurship and firms- that pay rent, wages, interest and profits (rewards for above factors of production ) firms then use the factors to produce GIS in return for payment from consumer. Gobo imposes taxes on individuals and (income tax) and firms (corporate tax) to provide infrastructure and other services to community Cocoon’s 2 basic assumptions are – human wants are limitless and the resources available are limited.
Satisfying unlimited wants with limited resources is the basic problem. Apart from free goods- air, sunshine etc Needs- food, clothing, shelter, medicine, education, travel. Wants- specific satisfiers of these needs. The ‘ collector mentality is assumed in humans. Egg- ostentatious goods- goods bought for symbolic value- luxury cares, expensive wrist watches etc. Firms also create wants in consumers.
Consumer has to decide how to spend his limited income to Max his satisfaction, firms with limited capital to Max profits and gobo with limited tax revenue to Max society welfare or votes A definition of economics- “it is a study of how individuals and societies chose to employ scarce resources to obtain Max benefit” or ‘economies’- make the most of what is available But
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What goods to buy,entree- where to invest limited capital etc Opportunity cost/real cost – cost or value of the next best alternative foregone in making a choice . Measured not in terms of money paid but amount of alternative commodity that must be given up. Geol. grapes given up to buy 1 keg apples, value of revenue lost in country X to produce in country Y etc For this to arise two conditions must be met- 1 . Resources must be scarce (apart from free goods). . Resources must have alternative uses Consumer’s budget line/budget constraint/ consumption possibility line shows what he can buy with given income, which is at any point of the line A producer also incurs pop. Cost due to limited capital. Egg- transfer resources from A to B to produce more B. So o/c is the reduced output of A, Holding excess inventory has o/c since it is capital tied up, re investing own profits o/c is profitable investments elsewhere etc.
Production possibility curve/ frontier/ boundary/ transformation curve (PC)- shows what is possible for an economy to produce if all resources are fully employed If PC is a straight line then equal pop. Cost. In an economy, the optimal output depends on the political economic situation and priorities in resource allocation. PC assumptions are 1 . Resources of a country are fixed at any given point of time 2. The state of technology of production is given 3. There is full utilization of resources 4.
Assumed only 2 goods or (categories) are produced to be rep. In the graph Points on PC are Max. Output with full resources. Points outside cannot be reached with given resources it is a higher output combination and satisfaction. ( CZ resources. Scarcity, choice, opportunity cost( but points inside curve do not involve any o/c) law of diminishing returns are concepts of PC away of diminishing returns/increasing pop. Cost – each additional unit of one unit can be obtained by giving up increasing units of the other.
Due to increasing o/c since factors of production are not perfect substitutes. A factor optimal in one may not be so in another. Opportunity cost= no of units of y given up No of units of x acquired Right Shifts in Eavesdropping new productive resources, improved technology improved labor productivity (du,training, etc) PC shifts inwards Depletion of natural resources Damages to infrastructure Decline in labor productivity In a country, wealth is the stock of economic goods(not money).
Money available to a country is the foreign exchange reserves since it represents command over another country’s goods. Basic economic sq What to produce(in a free market based on consumer), how to produce( the method that is cheeseboard intensive or capital intensive), for whom to produce (depends on political system), where to produce( location), when to produce( now or later) Economic systems are the broad framework in which those basic sq are answered. Capitalist/Free Enterprise economy