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Eco Ch03 - entrepreneurship to firms Simple circular model...

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3.1 Consumer Sovereignty ( S ): Consumers vote with their dollars in a market economy (an economy that allocates goods and service through private decisions of consumers, inputs supplier, and firms); this accounts for what is produced. Command economy: Economy in which the government use central planning to coordinate most economic activities Mixed economy: An economy where government and the private sector determine the allocation of resources Labor intensive: Production that uses a large amount of labor (developing country) Capital intensive: Production that uses a large amount of capital (USA) 3.2 Producers = firms buyers = householders Product markets: Markets where householders are buyers and firms are sellers of goods and services. Factor markets: Markets where householders sell the use of their inputs (capital, land, labor, and
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Unformatted text preview: entrepreneurship) to firms. Simple circular model: an illustration of the continuous flow of goods, service, inputs, and payments between firms and householders. 3.3 Production possibilities curve: The potential total output combinations of any two goods for an economy. In short, the economy is not using all its scarce resources efficiently; as a result, actual output is less than potential output. Increasing opportunity cost: The opportunity cost of producing additional units of a good rises as society produces more of that good. The basic reason for the increasing opportunity cost is that some resources and skills cannot be easily adapted from their current uses to alternative uses. Resources tend to be specialized. 3.4...
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