1 the market system: scarcity, choice & opportunity cost
scarcity: limited resources, unlimited wants
wants: all goods and services would consume if we have unlimited income
resources: inputs used to produce goods and services
land
labour
capital
entrepreneurship
choice: selecting among alternatives
opportunity costs: value of the next best alternative forgone
how to produce
for whom to produce
what and how much to produce
rational decision making
marginalist princinpe
marginal benefit: additional benefit gained from consuming one more of good/service
marginal cost
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
increase in the quality and quantity of resources
technological advancements