Economic Problem – Solution: 1. Tradition – Jobs, food, attitude 2. Command – Gov’t buys things that US will use (regulate, taxes, large corps.) 3. Market – Majority. Creates a change but can be unstable. Instabilities in market cause things such as inflation and unemployment. (Economy is either growing or shrinking). Iron Law of Wages – Real wages in the long run will be based on value needed to keep workers population constant. Comparative Advantage – Being better suited to make one product over another. “The rate of unemployment is too high” – Normative economics – What it should/ought to be. Positive economics – What it is? Invisible Hand – Competition directs self interest to the common good. PPF = No such thing as free lunch Solutions for Externalities – 1. Internalize Compensation (pay those affected) 2. Regulation 3. Who owns property rights – determines who gets compensated and who doesn’t.
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