Economic Systems
This economic system relies primarily on customs, traditions, and habits.
Traditional Economy
What is scarcity?
The inability to satisfy all wants because resources are limited.
What is opportunity cost?
The next best alternative given up when making a choice.
What is absolute advantage?
The ability to produce a good using fewer resources.
A statement that can be tested with facts and evidence.
In this system, the government owns most resources and makes production decisions.
Command Economy
The graph that shows the maximum combinations of two goods an economy can produce.
PPC, Production Possibilities Curve
If you choose to spend Saturday studying instead of working and earning $80. What is your opportunity cost?
$80
What is comparative advantage?
The ability to produce a good at a lower opportunity cost.
Normative Statement
A statement based on opinions or value judgements
Market Economy
How is inefficiency shown on the PPC
A point inside the PPC
A student can either attend a football game or a concert. She chooses the football game. What is the opportunity cost?
Attending the concert
A country should specialize in producing the good for which it has this.
Comparative advantage
a positive statement
Most modern economies, including the United States, are examples of this type of economy.
Mixed economy
How is efficiency shown the PPC
A country can produce either 60 cars or 120 computers. What is the opportunity cost of producing 1 car?
Country A can produce either 100 apples or 50 oranges. Country B can produce either 120 apples or 120 oranges. Which country has the comparative advantage in apples?
Country A
"The government should provide free college tuition" is an example of
a normative statement
The three basic economic questions all economies must answer are...
what to produce, how to produce it, and for whom to produce it
What is unattainable production with current resources?
A point outside the PPC
Nation A can produce either 200 units of wheat or 50 units of steel. Nation B can produce either 180 units of wheat of 90 units of steel. Which nation has the lower opportunity cost of producing steel?
Sarah can make 10 bracelets or 20 necklaces per hour. Maya can make 12 bracelets or 18 necklaces per hour. Who has the comparative advantage in bracelets?
Maya
A politician says:
"The poverty rate increases from 10% to 12% last year, so the government should raise welfare benefits."
Identify the positive statement and the normative statement.
Positive:The poverty rate increases from 10% to 12% last year
Negative: the government should raise welfare benefits