Choice and opportunity cost


By subject

“Social science”

On this topic

The concept of economics.

Prepared by:

Maksimov Alexander

Student 621 group

The concept of economics.

The concept of economics came to us from Ancient Greece and literally means the rules of the economy, that is, in those days it meant “the art of housekeeping.” Two thousand years later, this concept took on a broader meaning.

First, the economy is an economy , that is, a system of management and social production. The main tasks of the economy as an economy:

1. Production (of goods and services).

2. Distribution (of goods, services and income).

3. Exchange (of goods and services for money or for another product).

4. Consumption (of goods, services, products).

Key elements: production, goods and services. Production can be tangible or intangible (education, health care, etc.).

A commodity is a product of labor activity; main features of the product :

  • intended for exchange and has value;
  • satisfies any human need;
  • capable of being exchanged for another commodity (money).

A service is a product of the useful activity of a person or a group of persons, designed to meet certain needs. The service can also be tangible (mobile phone repair) or intangible (consultation). Services are managed by such a branch of the economy as the service sector .

Secondly, economics is a science , or rather, a set of sciences that study the production, distribution, exchange and consumption of goods and services.

The main task of economic science is the maintenance of an efficient economy and ways to achieve it, the optimal use of resources. I’ll try to decipher. The questions of economics as a science are as follows:

  • what to produce;
  • how to produce;
  • who will produce it;
  • for whom it will be made.

Functions of the economy.

1. Cognitive function: collection of information, facts, their study, analysis and systematization of knowledge.

2. Methodological function: development of effective methods and management tools.

3. Critical function: identification of achievements and shortcomings in economic activity, and their analysis.

4. Practical function (it is also pragmatic or applied): the application of the developed methods in practice.

5. Predictive function: predicting the economic development of our society.

6. Educational function: providing knowledge on economic practice and theory, consulting on economic issues.

7. Ideological function: creation of an ideological system, ensuring the moral certainty of a person in the future.

The main questions of the economy

Mankind has to make choices in the world of economics at every turn. People are forced to constantly look for answers to several main questions of the economy:
1. What and in what quantity to produce, i.e. what goods and services should be offered to consumers?
2. How to produce, i.e., which of the methods of producing goods with the help of available limited resources should be applied?
3. How to distribute the produced goods and services, i.e. who can claim to receive them as their property?

Answering the first question, people ultimately distribute limited resources among producers of various goods. Let’s say, if we decide to make refrigerators from the metal we have, then the metal will go to enterprises that produce refrigerators, and not stoves. And the plates will not be produced.

When deciding “how to produce”, people choose their preferred methods (technologies) for manufacturing the set of goods that was the answer to the question “what to produce?”. For example, Russia’s favorite food product, potatoes, can be grown on backyard plots, using mainly manual labor and natural fertilizers. But the same amount of potatoes can be obtained in large agricultural enterprises using powerful agricultural machinery and mineral fertilizers produced by the chemical industry.

Each of the possible options for technological solutions involves its own combination and scale of use of limited resources (one is more labor-intensive, the other is more energy-intensive, the third requires more capital, etc.).

Choice and opportunity cost

Opportunity cost is the benefit or benefit that we would get from the best of the unchosen options.

A person is always faced with limitations and choices, so we choose the best, and what remains in 2nd place is the opportunity cost.

Every economic system must address the following questions.

1.WHAT TO PRODUCE? What needs are considered the most important and how to distribute scarce resources between the production of various goods and services.

2. HOW TO PRODUCE? Having solved the first question, one should choose the technology of production – to determine in what combination the factors of production will be used. If the technology in a given society is not sufficiently developed, such technologies are chosen that require a relatively large contribution of labor ( labor intensity) and a small contribution of capital ( capital intensity) . In the course of technological progress, the labor intensity of production decreases, and capital intensity, as a rule, increases. The economic system must choose the mode of production that yields the greatest possible return on available resources.

3. FOR WHOM TO PRODUCE? Let us assume that in the economic system the necessary products are determined, production resources are distributed, the best technologies are selected and finished products are produced. How to distribute them? In what proportion to exchange?

The method of scientific abstraction – allows you to exclude from consideration individual non-essential relationships between subjects of the economy and focus on the consideration of several subjects.

Value is the basis of quantitative ratios in the voluntary exchange of goods between owners. Different economic schools explain the nature of value in different ways: by the cost of working time, the balance of supply and demand, production costs, marginal utility, etc.

Use value is a set of properties of a product that are directly related both to the product itself and to related services, which determine its ability to satisfy the production, social, personal and other needs of people. It is the material content of wealth. Therefore, in its original manifestation, use-value is a natural property of the good. Every product has it.

The social form of use value means that the purchased commodity is necessary for society. From this we can conclude that social use value is the social significance of a good or its value to society. A social use value is also a use value which:

1. has utility, that is, it was created not for its own consumption, but for exchange on the market;

2. created in quantities and structure corresponding to social needs, or, in any case, not exceeding it;

In a commodity economy, use-value is the bearer of the exchange-value of a commodity. The exchange value of a commodity is the quantitative relation in which use-values of one kind are exchanged for use-values of another kind. For example, one ax is exchanged for two skins, as happened in ancient times, or a ton of fish is exchanged for three cubic meters of timber, as is the case with modern barter. The question is what lies at the basis of these exchange proportions, why are they exactly the way they are and not others, and what makes it possible to compare goods that are incomparable by any external features?

There are two theoretical concepts in this regard in economics. The first is called the labor theory of value, the second – the theory of marginal utility. They can be called consumer and production approaches. Marginalism, when explaining the reasons for the exchange of goods for each other, proceeds from the presence of their utility. Thus, they drew attention to the first and very important property of the product. The utility or use-value of a commodity may be spoken of as a qualitative characteristic of the commodity, not as a quantitative one, and it may be regarded as a condition of exchange rather than as a basis for the equivalence of exchange.

Opportunity cost – the cost of producing a good or service, measured in terms of the lost (lost) opportunity to produce another type of good or service that requires the same resource costs; the price of replacing one good with another. If, when choosing from two possible goods and their sources, the consumer (buyer) prefers one, sacrificing the other, then the second good is the alternative price of the first. So the opportunity cost of a good is the price of loss that the consumer is willing to pay in order to be able to acquire the desired good.

Opportunity costs are the costs of producing goods and services, measured by the cost of the best lost opportunity to use the factors of production spent on their creation. The opportunity cost of production is the main driving force behind producers to maximize their profits.

Limited resources

Resource scarcity is an economic concept that expresses the finiteness, rarity, scarcity of resources available to man and mankind at any given moment, their relative insufficiency in comparison with the unlimited human needs for which these resources are used.

In a broad sense, first of all, the ability of a person to take free material resources available in nature in abundance is limited, [1] despite the fact that in the long term only irreproducible conditions can be strictly scarce – time and the best natural resources.

Factors of production

Land is natural (natural) resources necessary for the existence of human society and used in the economy.

Labor is a purposeful, conscious human activity aimed at meeting the needs of the individual and society. In the process of this activity, a person, with the help of tools, masters, changes and adapts objects of nature to his goals, uses the mechanical, physical and chemical properties of objects and natural phenomena and makes them mutually influence each other to achieve a predetermined goal. In the process of purposeful labor activity, a person (the subject of labor), with the help of the tools created by him, transforms the object of labor into the product he needs. The product of labor is due to the specifics of the object (material), the level of development of tools, the purpose and method of its implementation.

Capital – a set of property used for profit. The direction of assets in the sphere of production or provision of services for the purpose of making a profit is also called capital investments or investments. The independent term capital is not used in modern accounting, but there are a number of close indicators of financial analysis. For example, equity is the difference between the value of a company’s assets and its liabilities. Usually this value is formed at the expense of the authorized capital (contribution of the company’s owners), additional capital (revaluation of property, share premium), retained earnings and reserves (formed from profit).

Entrepreneurial ability is a factor that binds together the rest of the resources of production, an economic resource, which should include entrepreneurs, entrepreneurial infrastructure, and entrepreneurial ethics and culture. In turn, entrepreneurs primarily include owners of companies, managers who are not their owners, as well as business organizers, combining owners and managers in one person. The term “entrepreneurial potential” is also used. In general, entrepreneurial potential can be characterized as the potential for the realization of people’s entrepreneurial abilities. The uniqueness of the meaning of entrepreneurship lies in the fact that it is thanks to it that other economic resources come into interaction – labor, capital, land, knowledge. The initiative and skill of entrepreneurs, multiplied by the market mechanism, make it possible to use all other economic resources with maximum efficiency and stimulate economic growth.

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