Economics 2005 Increasing opportunity cost • PPFs are bowed out from the origin. • This is because not all of society’s inputs are equally good at making each product. • In other words, as we make more and more of one good, we are using more and more of society’s resources to make that good. • Some of those resources may not be well suited to producing that product. • If this is the cWe also discuss several other topics like shane walsh umd
Don't forget about the age old question of unf law
Don't forget about the age old question of what are the moral theories
We also discuss several other topics like vladimira wilent
We also discuss several other topics like mrszx
If you want to learn more check out ttu checklist
ase, you would have to use A LOT of those resources to make even a little more output (thus leaving less for the other product that society makes). Scarcity, Choice, and Opportunity Cost Negative Slope and Opportunity Cost marginal rate of transformation (MRT) The slope of the production possibility frontier (ppf). Scarcity, Choice, And Opportunity Cost Economic Growth economic growth An increase in the total output of an economy. It occurs when a society acquires new resources or when it learns to produce more using existing resources. Shifting the PPF •Things that can shift the PPF: 1. Changes in resource availability • Size, health, skill of labor force • Availability of other resources 2. Increases in capital stock• More output 3. Technological change • Employs resources more efficiently 4. Improvements in the rules of the game • Formal and informal institutions • Economic growth Consuming today vs. consuming tomorrow Capital Goods and Consumer Goods consumer goods Goods produced for present consumption. capital goods Goods that are used in the production of other goods and services. investment The process of using resources to produce new capital. Because resources are scarce, the opportunity cost of every investment in capital is forgone present consumption. Consuming today vs. consuming tomorrow •The more we (as a society) invest today, the more we can consume tomorrow. •The more we consume today, the less there is left over for tomorrow. •Every society (as well as every person) faces the decision of how much to consume today vs. how much to consume tomorrow. Consuming today vs. consuming tomorrow •This decision, like all economic decisions is based on expected costs and benefits of the choices involved. •This is another example of opportunity cost -the cost of consumption today is consumption tomorrow and vice-versa.Poor countries and the vicious cycle of poverty • Very poor countries cannot afford to invest much at all as all available resources are used to keep people alive and keep society operating. • Because of this they can never build enough capital to pull themselves out of poverty – and they therefore remain poor. • Rich countries can consume a lot AND invest a lot in new capital – which makes them even richer over time. Economic Systems TRADITIONAL ECONOMIES traditional economy An economy in which tradition alone determines the nature of economic activity. Tradition answers all three questions. Example: Shell trading in the Trobriand Islands. Necklaces go clockwise, armbands counterclockwise. COMMAND ECONOMIES command economy An economy in which a central government either directly or indirectly sets output targets, incomes, and prices. (aka “centrally planned”) Those in charge answer all three questions. Example: North Korea, Cuba in the 1980s and 90s (not as much today). Economic Systems LAISSEZ-FAIRE OR MARKET ECONOMIES: THE FREE MARKETlaissez-faire or market economy (aka pure capitalism) Literally from the French: “allow [them] to do.” An economy in which individual people and firms pursue their own self-interests without any central direction or regulation. The market determines what is produced, how it is produced, and who gets it. market The institution through which buyers and sellers interact and engage in exchange. Economic Systems Market Economies •Market economies are based on the concept of private ownership. •“Ownership” means that people should be able to do what they want with the things they buy (so long as no one else gets harmed) and prevent others from using them (more on this later in the course). Market Economies consumer sovereignty The idea that consumers ultimately dictate what will be produced (or not produced) by choosing what to purchase (and what not to purchase). free enterprise The freedom of individuals to start and operate private businesses in search of profits. Market Economies are also based on the ideas of Consumer Sovereignty and Free Enterprise Market Economies •Examples: No pure market economies. Hong Kong and New Zealand may be closest. •United States is “mostly” a market economy.3 Questions in a Market Economy (1) What gets produced? Determined by people “voting” with their dollars (demand). •“Voting patterns” change over time. •Some things get no votes - so don’t get produced. •Voting can vary by region. (2) How is it produced? Determined by the cost of production and the preferences of consumers. •Different materials or technologies are available. (3) Who gets it? Those who pay for it. The United States (as do most countries) has a mix of all three types of economy. Traditional: Tipping Command: Welfare, Roads, USDA Market: iPhones, Twix Bars, most stuff Economic Systems MIXED SYSTEMS, MARKETS, AND GOVERNMENTS The differences between traditional economies, command economies and laissez-faire economies in their pure forms are enormous. In fact, these pure forms do not exist in the world; all real systems are in some sense “mixed.” Economic Systems Why “mixed” and not “market”?Even staunch defenders of the free enterprise system recognize that market systems are not perfect. •First, they do not always produce what people want at lowest cost—there are inefficiencies. •Second, rewards (income) may be unfairly distributed, and some groups may be left out. •Third, periods of unemployment and inflation recur with some regularity. •There are also things called “market failures” that may cause more inefficiency (more on this later). Because of these issues, the government is often needed to “fix” what is wrong with the system.