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