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Chp 1- The Market System: Scarcity, Choice and Opportunity Cost, Chp 2a -…
Chp 1- The Market System: Scarcity, Choice and Opportunity Cost
Economics: is a social science that studies the allocation of scarce resources to the production of goods and services used to satisfy consumers' unlimited wants
postive economics:
- objective
- capable of bring refuted by reference to evidence
negative economic:
- subjective
- cannot be proved or disproved by ban appeal to facts
Scarcity: is the problem arising from limited resources and unlimited wants.
SCARCITY NECESSITATES CHOICE
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Opportunity cost: is the value of the next best alternative forgone when a choice is made
CHOICE INVOLVES OPPORTUNITY COST
3 key question to be addressed:
- what to be produced, and how much to be produced?
- how to produce?
- for whom to produce?
RATIONAL DECISION MAKING
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Decision-making Framework:
- prior to decisions being made
- economic agents (consumers, producers, gvt.)
- perspective
- costs and benefits [determined by perspective]
- constraints
- information
- after the decision is made
- impacts (intended consequences and unintended consequences)
- revisting the decision
- changes over time (internal and external)
- consequences
CONCEPTS OF EFFIENCY
Economic efficiency: is a situation where each good is produced at the maximum cost and where individual people and firms get the maximum benefit from their resources.
Allocative efficiency: is achieved when the current combination of goods and services produced and consumed allows the society to attain the greatest level of satisfaction.
Productive efficiency: is achieved when the firms in an economy are
- producing the maximum output for the given amt of inputs
- producing a given output with the least cost combination of inputs.
PPC model: shows the maximum attainable combinations of 2 goods and services that can be produced in an economy, when all the available resources are used fully and efficiently, at a given stage of technology
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ECONOMIC GROWTH
Actual economic growth (short-run growth):
percentage annual change in national output
- illustrated by an outward movement
from a production point within the PPC
to a production point closer to/on the PPC
Potential economic growth (long-run economic growth):
an increase in the productive capacity of the economy
- illustrated by an outward shift of the PPC
- increases in the quantity of resources
- improvements in the quality of resources
- Technological advancement
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