The Allocation of Resources

• Microeconomics studies the economic decisions and actions of individual consumers, producers and households and how these economic decision makers interact
• Macroeconomics is the study of the economy as a whole, including the production, distribution, and consumption of goods and services.
• There are 3 questions a firm has to answer. What to produce, how to produce, and who to produce for.
• A market economic system is when the government does not intervene in the economy. The actions of consumers and firms will determine the allocation of resources.
• A planned economic system is when the government is in complete control of the allocation of resources. Individuals and firms have little control over their own economic activities.
• A mixed economic system is when the government controls the economy but also allows for private ownership of property and businesses.
• A market is a set of arrangements that bring together consumers and producers.
• The higher the prices, the more profit firms will make. Firms will want to supply more profitable goods and services.
• Market equilibrium is when the amount of quantity supplied matches the amount that is demanded
• Market disequilibrium occurs when the quantity supplied does not match the quantity demanded
• Changes in price and quantities are features of markets that are in a state of disequilibrium
• High degree of consumer satisfaction is an advantage of a Market Economy
• A lot of individual freedom for consumers and firms is an advantage of a Market Economy
• People can easily react to small day to day changes and producers can easily react to the market right away in a Market Economy
• Innovation and creativity thrive in a Market economy
• A disadvantage of a Market economy is that it does to provide basic needs for all citizens.
• A disadvantage of a Market economy is that there are lots of risks and uncertainty.
• A disadvantage of a Market economy is that it struggles to provide services that are not profitable.
• A disadvantage of a Market economy is that it can easily fail if certain conditions are not met.
• An advantage of a Mixed economy, is that there is a balance of needs and wants met by the government and in the market place.
• A disadvantage of a mixed economy, is that people have to pay taxes for government programs.
• An advantage of a Planned economy is that there is a smaller gap between the rich and the poor.
• An advantage of a Planned economy is that the government ensures everyone is employed.
• An advantage of a Planned economy is that there is a fairer distribution of income.
• An advantage of a Planned economy is that there is no competition between firms.
• An advantage of a Planned economy is that goods and services are produced in the interest of society.
• An advantage of a Planned economy is that there is an equal standard of living for everyone.
• A disadvantage of a Planned economy is that there are no incentives for businesses to produce better products and they are generally less efficient.
• A disadvantage of a Planned economy is that it is less flexible and reacts slower to changes in consumer purchasing patterns.
• A disadvantage of a Planned economy is that delays in arriving at decisions can be accompanied by corruption.
• Monopoly -> A few number of competitors
• the price mechanism is the process by which the price of a good or service is determined by the interaction of supply and demand
• The price mechanism sends signals to producers which tells them which products are becoming more profitable
• Falling prices means that a product is becoming less profitable, so firms shift their production to more profitable products
• Demands is the quantity of a good consumers are willing and able to purchase at various prices during a given period of time.
• An extension in demand is when the price of a product falls and the quantity demanded rises.
• A contraction in demand is when the quantity demanded falls because the price rises.
• The only factor that can cause an extension or a contraction in demand is the price.
• Changes in income cause shifts in demand because as income increases, households are able to buy more products that they might not have been able to before.
• The prices and availability of other goods and services can cause shifts in demand because if prices become cheaper, more people will want to buy a product. If a product's price increases, the consumer may look to other substitutes. If a product's price decreases, demand for it's complementary products will increase.