Wants are unlimited but resources are scarce. So you must choose what, how and for whom to produce.
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What is opportunity cost?
The benefit lost from the next best alternative,
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What is a PPC?
PPCs show how a country's resources can be used to produce combinations of two different goods.
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Link opportunity cost to PPCs.
Outside the PPC- impossible. On the PPC- at max capacity. Inside the PPC- not all resources are being used. Opportunity cost is incurred when moving from one point to another in the PPC.
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What is an economy?
A system that tries to solve the economic problem.
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What is a market economy?
Private sector firms provide most/all G&S. What to produce- linked to demand for goods. How- linked to most efficient way of production, to lower costs and so be competitive. For whom- those that can pay.
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What is a planned economy?
Public sector organisations provide most/all G&S. What- gov estimates demand. How- chosen by gov. For whom- usually shared out equally.
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What is a mixed economy?
Both private and public sector organisations provide G&S.
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What do private sector firms do in a mixed economy?
Provide most goods, by profit making businesses (maximise quality and minimise cost). Sold to who can afford it.
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What do public sector organisations do in a mixed economy?
Provide things that private firms may under-provide (lack of profit), e.g. education, healthcare. Gov decides how they should be provided/produced efficiently. Usually provided free and paid for by taxes.
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What is efficiency and why is it important?
Minimising resource use, and costs, and only producing necessary goods; because resources are scarce, because prices are lower and the firm can survive, and because these goods will then be bought.
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Evaluate efficiency in private sector firms.
Competition ensures only efficient firms survive- if costs are higher than rivals', then prices will be higher and goods will not sell. Quality goods, fair prices.
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Evaluate efficiency in public sector firms.
Efficiency may be lacking (no profit motive). Gov can set performance targets/pay private sector to provide services.
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What is market failure? How should it be dealt with?
When resources are allocated inefficiently. Negative externalities, lack of competition, missing markets, under-provided merit/public goods.
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How should market failure be dealt with?
Public sector should deal with it.Provide public/merit goods, ensure competition, penalise those who impose costs on society.
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What are public and merit goods?
Public=use by one person does not diminish another's, no way to ensure it is not used by those who do not pay. Merit=true value not appreciated, under-provided as lack of profit, perhaps should be free.
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What are the disadvantages of a market economy?
No way to ensure everyone has needs if they cannot pay, wealthy consumer may demand luxury goods that are produced instead of essential items, immobility of factors of production.
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What are the disadvantages of a command economy?
Consumers lose the freedom to choose, cumbersome admin system, officials are less innovative (not profit motive)
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Other cards in this set
Card 2
Front
What is the economic problem?
Back
Wants are unlimited but resources are scarce. So you must choose what, how and for whom to produce.
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