scarce resources, Choices and Opportunity Costs Flashcards
what is economics?
Economics is the study of HOW HUMANS MAKES DECISIONS in the face of SCARCITY.
SCARCITY?
we have unlimited wants BUT limited resources.
who was the first to address the subject economics in a conprehensive way?
Adam Smith
What is “division of labor”?
the way a good or service is produced is divided into a number of tasks that are performed by different workers
Why the Division of Labor Increases Production?
#3 reasons:SPECIALIZATION in a particular small job allows workers: 1. to FOCUS on the parts of the production process where they HAVE AN ADVANTAGE.
- to learn to produce more quickly and with higher quality.
- specialization allows businesses to take advantage of ECONOMIES OF SCALE.
Residents of the town of Smithfield like to consume hams, but each ham requires 10 people to produce it and takes a month. If the town has a total of 100 people, what is the maximum amount of ham the residents can consume in a month?
100 people / 10 people per ham = a maximum of 10 hams per month if all residents produce ham. Since consumption is limited by production, the maximum number of hams residents could consume per month is 10.
A consultant works for $200 per hour. She likes to eat vegetables, but is not very good at growing them. Why does it make more economic sense for her to spend her time at the consulting job and shop for her vegetables?
She is very productive at her consulting job, but not very productive growing vegetables. Time spent consulting would produce far more income than it what she could save growing her vegetables using the same amount of time. So on purely economic grounds, it makes more sense for her to maximize her income by applying her labor to what she does best (i.e. specialization of labor).
A computer systems engineer could paint his house, but it makes more sense for him to hire a painter to do it. Explain why.
The engineer is better at computer science than at painting. Thus, his time is better spent working for pay at his job and paying a painter to paint his house. Of course, this assumes he does not paint his house for fun!
economies of scale?
when the average cost of producing each individual unit declines as total output increases
specialization
when workers or firms focus on particular tasks for which they are well-suited within the overall production process
