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The value of the best alternative forgone when an item or activity is chosen
The ability to make something using fewer 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 separate tasks.
the direct exchange of one good for another without using money.
PPF: (Production Possibilities Frontier)
- -Inside PPF: Inefficient
- -Outside PPF: Unattainable
PPF Curve is bowed out due to law of increasing opportunity cost.
Changes in Resource availability
- -Size, health of labor force
- -Skills of labor force
- -Availability of other resources
Changes in Capitol Stock
Changes in Technology
-Employs resources more/less efficiently
Changes in the rules of the game
- -Formal and informal institutions
- -Economic growth
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?
Pure Capitalism System
- -Private property rights
- -Unrestricted Markets
- -Voluntary buying and selling
- -Adam Smith "Invisible Hand"
Pure Command System
- -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 right-Decreases shift to the left
Law of Demand
Inverse relationship between quantity and price is why curve is downward sloping.