Economics and Choice
Economics Systems
- Types:
- Socialism
- Communism
- Capitalism
Importance of Economics
- Study of economic and government principles is essential to understand societal dynamics.
Market Pricing
- Prices in a free market are determined by:
- Law of Supply and Demand
Characteristics of Free Markets
- Key characteristics include:
- Innovation
- Efficiency
- Competition
Economic Systems Defined
- Traditional Economy:
- Family-based, resistant to change, low living standards, rural.
- Command Economy:
- Central planning, limited personal freedom, government controls production, often leads to shortages.
- Market Economy:
- Governed by supply and demand, minimal government intervention.
- Mixed Economy:
- Combination of free market with some government regulation.
Factors of Production
- Four factors include:
- Land
- Labor
- Capital
- Entrepreneurship
Opportunity Cost
- Definition: What is sacrificed to gain a benefit.
Cost-Benefit Analysis
- A method weighing the benefits of an action against its costs to evaluate economic choices.
Production Possibility Curve (PPC)
- Illustrates efficiency and opportunity cost in production decisions.
Fundamentals of Market Economy
- Private Property
- Specialization
- Consumer Sovereignty
- Competition
- Profit
- Voluntary Exchange
- Government Involvement
Market Failure
- Occurs when goods and services fail to reach customers without government intervention for correction.
Public Goods
- Goods that cannot be efficiently provided by the market and typically funded by taxes.
Free Rider Problem
- Scenario where individuals benefit from resources, goods, or services without paying for them.