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1 the market system: scarcity, choice & opportunity cost (choice:…
1 the market system: scarcity, choice & opportunity cost
scarcity: limited resources, unlimited wants
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rational decision making
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efficiency (minimum cost, maximum benefit)
productive efficiency: maximum output for the given amount of inputs (achieved when all the available resources are fully employed to achieve the maximum output)
allocative efficiency: current combination of goods and services, greatest level of satisfaction (value consumers place on a good (price willing to pay) equals the cost of the resources used up in the production of that unit of good)
production possibility curve (PPC): maximum attainable combinations of two goods and services that can be produced in an economy, when all the available resources are used fully and efficiently, at a given state of technology
increasing opportunity cost (concave ppc, not perfectly suitable)
economic growth, shift of ppc
actual economic growth: short run growth, percentage annual change in the national output, within to on the ppc
potential economic output, long-run, increase in the productive capacity, outward shift of ppc
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