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What will be produced what how will it be produced

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Unformatted text preview: r What will be produced? What How will it be produced? Who will get what is produced? Who That is, a economic system must decide the allocation of inputs(resources) among producers, the mix of output, and the mix and distribution of output, no matter the scale of distribution no the economy and level of development. the All societies are endowed by nature and by previous generations with scarce resources. Every society must decide how to use these inputs to satisfy human wants. Specifically, resources must be divided up among producers who transform them into goods and services that in turn must be allocated among households or members of society. The Production Possibility Frontier Production possibility frontier, or PPF, is or a simple graphical device used to illustrates the constrained choice and scarcity, showing all the possible combinations of goods and services that can be produced if all resources of the society are used efficiently. Due to resources scarcity, the more capital goods are produced, the fewer consumer goods can be produced, and vice versa. Moving from possibility E to F, ΔK is the increase in the number of capital goods. To produce more capital goods, resources must be transferred from the production of consumer goods. So ΔC indicates the decrease in the number of consumer goods. All points below and to the left of the dark green curve(the light green area) represent combinations of capital and consumption goods that are possible for the society given the resources available and existing technology. Points above and to the right of the curve such as G represent combinations that cannot be realized. Points on the production possibility frontier can be thought of as full employment and production efficiency, where resources are not going idle or wasted. If an economy ends up at the point that lies within the light green area such as D, it is suffering from unemployment and production inefficiency. Economic Systems Market Economy: A market economy is a type of economic system in which market the trading and exchange of goods, services and information takes place in a free market. A market economy may therefore also be known as a free market economy. The phrase is typically applied to countries or administrative regions that follow this approach. Since free markets are governed by the law of supply and demand, the market itself will determine the price of goods and services, and this information will be made available to all participants. Businesses can decide which goods to produce and in what quantity, and consumers and businesses can decide what they want to purchase and at what price. Command Economy Command A command economy, also called planned economy, is directly command also controlled by the government. The state owns all property and controls all resources including land, labor, and capital in a command economy. Allocations of resources, supply, and price are regulated through central planning by command economy experts. T...
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