ppf and systems

• what is a positive statement?

  a fact that can be scientifically tested
• what is a normative statement?

  express an opinion about what ought to be, more like a subjective statement
• microeconomics

  study of individual decision making by both individuals, firms and markets
• opportunity cost

  its measured in terms of the alternatives that have to be given up
• what is the economic problem?

  how to make the best use of limited, or scarce resources

  what will be produced, how and from whom
• 4 factors of production

  land - goods like minerals, the land itself

  labour - physical skills, abilities and intelligence

  capital - machinery, tools and buildings

  entreprise - risk takers
• scarcity, choice and allocation of resources

  what to produce

  how to produce

  for whom to produce
• definition for factors of production

  refer to the resources available to supply goods, they are the building blocks of the economy, consisting of four categories; land, labour, capital and enterprise
• defenition for opportunity cost

  the best next alternative that we have to go without when making a choice, aka the sacrifice made when making a decision
• what is economics?

  the social science which studies man's behaviour as a producer, consumer of goods and services
• what determines this allocation of resources?

  individuals wanting to sell their labour to the highest bidder (entrepreneur) to maximise their wages

  entrepreneurs will use this labour to produce goods and services to achieve their max profit

  • its driven by the incentive of economic agents to maximise
• role of price and profit in a economy

  the higher the price the more attractive it is for the entrepreneur to supply the good/srvice, price creates an incentive for suppliers to offer the goods or service for sale
• functions of prices and profits

  when price rises, consumers cut back on their demand; signaling to producers that there's a shortage and so creates an incentive to suppliers to increase supply as more profit is available

  • incentive, rationinig and signaling
• what is a economic system?

  how people allocate scarce resources to satisfy competing wants and needs

  • it attempts to find ways of saving the basic economic problem
• capitalistic/command economies

  planning mechanisms (government) allocates scarce resources to their final uses

  • means of production are privately owned by individuals in a system of private enterprise
  • cuba, north Korea and russia
• mixed economies

  contains both a large non-market sector and a large market sector

  • contains a large public sector (government) and a large private sector
  • UK, france
• socialist/ market economies

  price mechanisms allocate scarce resources in the system of markets which makes up the economy

  • means of production are publically or socially owned via the state
  • south Korea, north america
• characteristics of a free economy

  private ownership of resources

  self interest is the main motive

  freedom of choice for producers and consumers

  price accurately shows the costs and benefits of consumption and production
• + and - of free markets

  + supply and demand creates an efficient use of resources, competition ensures quality

  _ those who cant afford do not receive goods and services, under consumption of educational and health care
• centrally planned economy

  a central authority makes all the allocation decisions, so they're likely to be influenced by the planners views on what beneficial for the people

  • all resources are publically owned so the price mechanism doesn't exist
• + and - of a Command economy

  + everyone gets what they need, no waste of resources on useless competition

  _ little choice, lack of competition limits quality
• the mixed economy

  some reosurces are allocated through the price or market mechanisms and other are allocated by the state
• + and - of a mixed economy

  + merit goods are provided for everyone (health care/ education), competition ensures quality of goods

  _ high levels of taxes, social security systems can encourage reliance on the government