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What is the process of decision-making?
Requires every economic agent to deliberate on available choices, considering constraints, benefits, costs, information, and perspectives.
What is a Rational Economic Agent?
Assumed to aim to maximise their own benefits and minimise costs of the choice being made. They assess intended and unintended consequences.
What are Economic Agents?
Consumers, producers, and the government.
What are Constraints? (Element of Decision-Making)
Limits faced by economic agents (e.g., time, financial resources, cognitive abilities) that determine available choices.
What are Costs and Benefits? (Element of Decision-Making)
Every economic decision has a set of monetary and non-monetary costs and benefits, including opportunity cost. Economic agents aim for maximum net benefits.
What is Information? (Element of Decision-Making)
Quantitative and qualitative data gathered by economic agents on costs and benefits to make sound, accurate decisions.
What are Perspectives? (Element of Decision-Making)
Economic agents consider the impact on and reaction from others affected by their decisions. Their rationality is not completely free from political or social perspectives.
What are Intended Consequences? (Outcome of Economic Decisions)
The expected outcomes when economic agents make decisions based on rational behavior and unchanging economic conditions to resolve an economic problem.
What are Unintended Consequences? (Outcome of Economic Decisions)
Outcomes that are not intended in the economic decision, often due to imperfect information or unpredictable changes in environment.
What are Internal changes? (Review of Decision-Making)
Changes in goals, constraints, information, and perspectives of economic agents over time, requiring a review of past decisions.
What are Changes in the external environment? (Review of Decision-Making)
External factors (e.g., global competitiveness) constantly change, influencing decisions and requiring review to achieve intended outcomes.
What are the three key economic questions for society?
What and how much to produce? How to produce? For whom to produce?
What is a Free Market Economy?
Markets decide and allocate resources through the price mechanism based on demand and supply forces, with a limited role for government (protecting property rights, value of money).
What is a Planned or Command Economy?
Scarce resources are owned by the government. The state allocates resources, sets production targets, and distributes goods/services based on its view of needs. Market prices play little role.
What is a Mixed Economy?
Some resources owned by the public sector (government), others by the private sector (firms and households). Public sector supplies public/merit goods and intervenes in markets.