7.5-7.6 Economics

Q How can a firm or worker increase productivity?

A: investment (using resources that can bring immediate benefits for the purpose of gaining greater benefits at a later time.)

Financial Investment - stocks or 401lk retirement plans at work

Capital investment - investment in capital goods and human capital

Capitol goods - products used to make other goods or provide services

Consumer goods - items purchase for final use by individuals

Recycling - good (either capitol or consumer) is reprocessed and reused

Education and training - people increase their knowledge, skills, and value but cannot take the place of real world experience

For both producers and laborers, there are always trade-offs and opportunity costs to investments

Q: How to decide how much to spend on investment versus how much on production and consumption?

A: Producer Price Index (PPI)- measures the average changes in prices for different goods

cost of investment is not only the amount that a producer spends on capital goods but also the opportunity cost of not using that $ to produce more goods to be sold

the opportunity cost of lost production can be found by comparing the ratio of output versus input

Input is all of the factors of production that go into making a good or service

Output is the amoung of the good or service being made

Law of Diminishing Returns - as more and more of a variable input (input whose amount, frequency can change) is combined with a fixed input (input that is unchanging), the amount of output per input increases

ex. slices of pizza - limit to where you enjoy it