For this week, we’re learning about introductory economic topics with the first one utilizing the concept of consumption today versus consumption in the future. This is shown through the production possibilities curve (PPC) which shows the maximum possible combination of goods or services that can be produced given your level of resources and technology. This is an important concept because this allows households, businesses and governments to determine which amount of each good should be produced that will benefit everyone now versus benefiting people in the future. Almost along the lines of the adage if you give a man a fish, he eats for a day but if you teach a man to fish he eats for a lifetime.
So a couple of things to note, is that the term “investing” is used in economics to mean research & development, technological advances, things to improve and enhance products or processes. Investing in finance is simply putting money into a fund, stock, bond, etc. So in economics it isn’t necessarily money related. In the same manner, the term “capital” in economics is used to mean machinery/equipment or something used to produce other goods, as opposed to in finance it just means money.
After watching the video clip from A Knight’s Tale, consider the effect of choosing consumption today versus consumption in the future. Using the PPC as a springboard for your analysis, what effect would forgoing consumption today in order to invest for tomorrow have on future production possibilities? Now consider the choices our government faces when it has limited tax revenues to fund the unlimited wants of its citizens. Describe some of the choices the government makes between consumption today and investment for tomorrow.