econ chapter 3 notes

econ chapter 3 notes - Government allocation of scarce...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Government allocation of scarce resources on the basis of need or equality poses problems because of diverse individual preferences, the problem of ascertaining needs, and the negative work and investment incentives involved. The market system is one way of allocating goods and services, and is found in most countries. Three fundamental questions which must inevitably be faced anywhere because of scarcity are 1) What is to be produced? 2) How are the goods to be produced? and 3) For whom are the goods produced? Consumer sovereignty = the concept that consumers vote with their dollars in a market economy. Consumer sovereignty explains how individual consumers determine what is produced. Command Economies = economies where the government uses central planning to coordinate most economic activities (ie. North Korea or Cuba). In a command economy, decisions about how much of a product to produce is determined by a government official or committee associated with the central planning organization. Market economies allocate goods and services through the private decisions of consumers, input suppliers, and firms. No nation has a pure market economy. Most countries, including the US, actually have a mixed economy. A mixed economy is an economy where government and the private sector determine the allocation of resources. Scarcity forces all economies to decide how to produce the goods and services they want. Goods like shovels or large earhmoving machines are capital. The best method of production is the least-cost method. Thest best of "optimal" form of production will often vary from one economy to the next. Optimal forms of production vary because labor is relatively cheap compared to capital in some places (ie. India), whereas capital is relatively cheap and plentiful elswewhere (ie. US). A country that uses a large amount of labor is labor intensive and a country that uses a large amoung of capital is capital intensive. The flow of income from firms to households as firms buy inputs to produce goods and services
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/18/2009 for the course ECON 200 taught by Professor None during the Spring '08 term at Pepperdine.

Page1 / 4

econ chapter 3 notes - Government allocation of scarce...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online