Overview

Purpose:

To illustrate how unlimited wants and scarce resources lead to trade-offs and choices, and to show how the economic cost of using resources to produce a good is the value of the goods that could have been produced with those same resources.

Objectives:

1. The amount of goods and services available for consumption in an economy depends on the quality of the economy’s productive resources, how well those resources are used, and whether all resources can be kept employed.

2. Productive resources are: land, labor, machinery, structures, and technical and managerial knowledge of various types and qualities. These resources are called "scarce" resources because they are never able to produce everything that everybody wants.

3. Resources tend to be more suitable for producing one type of good than another. Therefore, as more and more of a nation’s resources are devoted to the production of a specific good, there will be diminishing marginal returns.

4. The cost to society of producing a certain good (i.e. shifting productive resources into the production of that good) is the value of the goods that those resources could have otherwise produced.

Key Economic Concepts Scarcity of resources, marginalism, choices, tradeoffs, diminishing returns, substitution, opportunity cost.

Contemporary Issues President Bush – as President Clinton before him – has put a big emphasis on education. This emphasis on education is not unique to the U.S. The strong and sustained growth in Asia over the last three decades can be attributed, among other things, to high levels of educational attainment. Why is education so important to the economic future of a country? Specifically what does education do to the production possibilities curve – and for living standards? Is education a consumption good or an investment good?

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