EconCh2 - Pretend only two goods: guns and butter Want to...

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Econ 101 Kreider Chapter 2 Core Questions Every Society Must Answer 1. What goods will it produce? In what quantity? 2. How is it going to produce them? 3. For whom will the goods be produced? We’re forced with these decisions because of: Scarcity of resources, unlimited wants Economics is the study of how choices are made . When you make a choice, you inevitably incur a cost This cost is the value of the best alternative opportunity forgone: “opportunity cost” The (best) road not taken is the cost of the road taken Cost and choice are two sides of a coin Opportunity costs vary across people Opportunity cost and society: Consider economy with a given number of people; fixed technology, natural resources, etc. Given economic resources (land, labor, capital), how do we allocate into production of goods and services?
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Unformatted text preview: Pretend only two goods: guns and butter Want to be on the PPF (productive inefficiency) if inside |slope| is the OC of another unit of butter Law of increasing OC-the more of something we produce, the greater the OC of producing even more of it. What is produced? Depends on type of economy-traditional, command, and market exchange How does a market economy work? Usually through prices Determined by consumers voting with their dollars Specialization and Exchange: Allows higher standard of living Absolute advantage vs. comparative advantage-absolute advantage= when a person can produce a good using fewer resources than another person-comparative advantage= when a person can produce a good with a smaller opportunity cost...
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This note was uploaded on 03/30/2008 for the course ECON 101 taught by Professor Brentkreider during the Spring '07 term at Iowa State.

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EconCh2 - Pretend only two goods: guns and butter Want to...

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