-Basic Economic problem - unlimited wants, but limited resources The question is: How do we allocate these limited resources?
3 questions that any economic system must answer:
- What should be produced
- How should we produce it?
- Who gets it?
- You have heavy state involvement
- State of ownership of resources and control of production
- What should be produced - the state decides
- How to produce it - the state decides
- Who gets it - the state decides
- Private ownership
- Consumer control
- What should be produced - what we can sell
- How to produce it - the most efficient or cheapest way
- Who gets it - who can afford it
- Less developed countries
- What should be produced - what we always have produced
- How do you produce it - the way we always have
- Who gets it - who usually got in the past
Natural Resources - land, raw materials, etc
Capital Resources - means of production - the machinery, equipment, etc Human Resources - labour - workers and productivity
- entrepreneurship - ability to organize a business
Circular flow of an Economy
- The cost of what you give up to get something else
- Because of scarcity, we have to make choices
- When we make an economic choice, an alternative is given up
We try to build models in Economics that explain how the world works. The model tends to simplify the real world so we can study how it works.
- all other things being equal. when we have a model we change one variable, and leave the rest unchanged.
Positive and Negative Economics
- A positive statement is oce based on facts that can be verified. - A normative statement is something based on values or opinions.
The Production Possibilities Curve
This model illustrates
trade-off and choices
Increasing opportunty costs
-as you produce something, eventually the...
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