Economics
Producers and Consumers

Some Special Constraints
Producers
limits in factors of production

Consumers
limits to how much can be consumed

Law of Margin
Marginalism
As production increases, you get to a point where production falls off
adding more workers without increasing tools, etc.
As consumption increases, the returns decrease
the more you get, the less you want
Marginalism really means . . .
What's the effect of "one more?"

Prices
Prices dictate:
what to produce
how to produce it
who to produce it for
Prices provide information to Producers and Consumers

Elasticity of a Product
Elasticity only applies to Demand
meaning the Customer (Consumer)
Demand can be one of two things:
Inelastic
Elastic

Inelastic Demand
A huge change in price;
With little change in demand

Necessary items
milk, bread, gasoline

Elastic Demand
Little change in price;
With huge change in demand

Unnecessary items
steak, boats, jewelry

Governmental Controls
Price ceiling
government sets highest price a product can be sold for
Price floor
government sets lowest price a product can be sold for
Why price controls?
Price ceiling?
to protect the consumer

Price floor?
to protect the producer
Impact of Control
A price ceiling is not a problem if it is set above the market price.

A price floor is not a problem if set below the market price.

Economics:
Production

Competition
Companies compete in two ways:
Price
Make product more attractive

Production
There are 4 factors of production
Each factor goes by different names meaning the same thing:

Production Factor 1
Land
Natural Resources
Natural Capital
the things that go into products
tends to be limited

Production Factor 2
Labor
Human Resources
Human Capital
Labor is mental or physical
immobile - people don't like to move

Production Factor 3
Capital
Capital Resources
Capital Equipment
tools; anything to further production
the most fluid/changeable

Production Factor 4
Entrepeneurship
the one who takes the risk
makes the product and hope someone buys it
requires the use of all factors

Competition
Changes the mix of all production factors
Affects economic decisions using factors of production

Economics:
Consumption

Utility
Consumption is about Utility
- Usefulness
- Value
3 types of utility
- Form; Place; Time

Form Utility
The product is changed into a form useful to us
- Petroleum
- Iron ore
- Wood

Place Utility
Putting a product where the consumer can use it
- Gasoline
- Shoes
- Food

Time Utility
Making a product available when it is needed
- Clothing
- Toys
- School supplies

Importance of Utility:
Helps determine how the economy is shaped
Influences economic decisions

Utility affects Factors of Consumption

Factors of Consumption
Four factors

Determine economic decisions of the consumer and producer

Complementarity
Items that go together
- peanut butter/jelly
- bagels/cream cheese
Sale of one effects the sale of the other
- when one on sale, the other isn't

Substitutes
Items that take the place of another item
- cheaper items
- healthier items
Exchange (trade)
Both sides must benefit from voluntary exchange

One item for another

Externalities
Costs or benefits that go to somebody outside of the transaction
Can be positive or negative
- the neighbor's shade tree
- effects can be minimized if we know where they are coming from