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The value of the best alternative forgone when an item or activity is chosen
The ability to make something using
resources than others produce
The ability to make something at a lower opportunity cost than other produce.
focusing work effort on a particular product or single task.
Division of Labor
Breaking down goods production into
the direct exchange of one good for another without using money.
PPF: (Production Possibilities Frontier)
PPF Curve is bowed out due to law of increasing opportunity cost.
-Size, health of labor force
-Skills of labor force
-Availability of other resources
-Employs resources more/less efficiently
Changes in the rules of the
-Formal and informal institutions
3 Big Questions
1. What are we going to make?
2. How are we going to make it?
3. Who are we going to make it for?
-Private property rights
-Voluntary buying and selling
-Adam Smith "Invisible Hand"
-Public/Communal property ownership
-Government planners direct resources/coordinate production
Mixed and Transitional Economy
-Increasing role of government in capitalist economies
-Increasing role of markets in command economies
-People with no resources would starve
-Side effects for those not involved
-No public goods
Command System Flaws
-Resources used inefficiently/wasted (no incentives)
-Preferences of planners limits variety of products
-Less freedom of economic choice
-Increases in demand shift demand curve to the
-Decreases shift to the
Law of Demand
Inverse relationship between quantity and price is why curve is downward sloping.