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SCARCE: The general condition indicating that a good or resource is limited relative to the what people want. In terms of ALL resources and goods throughout society, the related term scarcity is used. Being scarce is what makes it possible to exchange goods and resources through markets, and most importantly, charge a price. If a good is not scarce, which means that the economy has more than enough to satisfy all available uses, then there is no way to sell it. Who would buy such an item, pay a price for it, give up something of value in exchange for it, when it is so abundant? Likewise, if a item is so abundant, using it to satisfy one use does not impose an opportunity cost on other uses.

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Lesson 22: Factor Supply | Unit 3: Factor Supply Page: 15 of 25

Topic: Factor Cost Times Three <=PAGE BACK | PAGE NEXT=>

  • A set of useful concepts in the analysis of factor markets:

  • Total factor cost is the opportunity cost incurred when using a given factor of production to produce a good or service.
  • Total factor cost is used as the starting point for calculating the other two related measures:

  • Average factor cost is the total factor cost per unit of factor input, found by dividing total factor cost by the quantity of factor input.
  • The third factor cost concept is marginal factor cost.

  • Marginal factor cost is the change in total factor cost resulting from a change in the quantity of factor input, found by dividing the change in total factor cost by the change in quantity of factor input.
  • Marginal factor cost indicates how a firm's total factor cost is affected by hiring one more or one fewer factor.

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SAY'S LAW

A principle of classical economics developed the French economist Jean-Baptiste Say that is commonly summarized as "supply creates its own demand." This law, also referred to as Say's "theory of markets" or "law of markets," indicates that the act of producing aggregate output generates a sufficient amount of aggregate income to purchase all of the output produced. This principle indicated that excess production or insufficient demand for production was unlikely to occur, at least for any extended period. When combined with flexible prices and saving-investment equality, Say's law further implied that an economy would achieve and maintain full employment of resources. This law was singled out by John Maynard Keynes in his critique of classical economics, but remains relevant in current macroeconomic analysis, reflected in the circular flow model.

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Today, you are likely to spend a great deal of time wandering around the downtown area hoping to buy either a turbo-powered vacuum cleaner or a battery-powered, rechargeable vacuum cleaner. Be on the lookout for the last item on a shelf.
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The word "fiscal" is derived from a Latin word meaning "moneybag."
"Good judgment comes from experience, and often experience comes from bad judgment."

-- Rita Mae Brown ‚ Writer

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