The Economic Problem Flashcards
(15 cards)
What is scarcity?
Concept, that there are limited resources to produce goods and services BUT there are unlimited (finite) wants for these goods.
What are Opportunity costs?
When one good is sacrificed for another, because you can’t produce both at the same time.
What does the Production Possibilities Curve (PPC) shows?
The max. Output an economy can have, with two types of output being produced, when it is using all its resources and technology is fixed.
What is when the point is beneath the PPC?
When the point is beneath the PPC, they are producing less than they could. They don’t use all their resources, maybe du to a lack of demand.
What is when the point is on the PPC?
When the point is on the PPC, they are producing at their max. output.
What is when the point is above the PPC?
When the point is above the PPC, they can’t produce that level of output, because there are not enough resources. But they want produce there in the future, because there is high demand.
What are there for different economic systems to manage scarcity?
- Planned economy
- Free market economy
- Mixed Economy
What is a planned economy?
Is is a command economy, where the government has a lot of influence in the economy. The government determines what, how and for whom to produce. The economy is collectively owned (Socialism). Is is usually seen in communist systems, like North Korea or Cuba.
What are the advantages of a planned economy?
- improved working conditions
- smaller market power
- merit good provided
- less demerit goods
What are the disadvantages of a planned economy?
- smaller choice of products
- less innovation
- less efficiency
- less flexibility to changes in demand
What is a free market economy?
The firms are owned privately. Companies decide what, for whom and how to produce. Government plays a limited role, they do as little as possible.
What are the advantages of a free market economy?
- change production more quickly
- innovation
- greater choice of goods and services
- high level of economic growth
What are the disadvantages of a free market economy?
- lack of supply of merit goods
- demerit goods are over provided
- no minimum wage
- abuse of market power (monopolies)
- bad for the environment (cheaper)
- sharp inequalities of income
What is a mixed economy?
Is a combination of a market economy with active government involvement in key areas, for example health care.
What are advantages of a mixed economy?
- more appropriate consumption of merit and demerit goods
- wider ability of public goods
- greater protection of vulnerable people
- protection of consumers (high drug prices)
- greater focus on full employment, environment and fairness
