L2) The Structure & Organization of Economies

Question 1

the ‘Economic Problem’ is…

Answer 1

Reflects Scarcity: describes low S & high D of a limited resource. In theory, human wants are infinate, but finate # of resources

Scarcity (forces us to make) -> Tradeoffs (which require) -> Choice

Finite resources force choice which reflect valuation/tradeoff

Question 2

Production Possibility Frontier (PPF)

Answer 2

is an illustration of the economic problem

Tradeoffs, valuation, preferences, opportunity cost
- X on the graph indicates the Underperformance Threshold

Ex: Party-Studying Possibilities Frontier

Question 3

What are the factors of production?

Answer 3

LLK (factor endowments) -> HUMAN INVESTMENT in NATURAL RESOURCES may generate WEALTH

Question 4

Private Goods vs Public Goods

Answer 4

Private goods: excludable, rivalrous
Public goods: non-excludable

Question 5

Reasons for why a resource might become scarce?

Answer 5

1) Natural Scarcity: ex: gold
2) Socially Constructed Scarcity: (think Marx) ex:

Both: diamonds both naturally (rare) and socially (monopolized) scarce

Question 6

What is the Invisible Hand of the Market?

Answer 6

Adam Smith: hazardous, hidden forces

Question 7

What are the types of market efficiency?

Answer 7

Productive Efficiency: how to produce at lowest cost (persistence)
Allocative Efficiency: how to efficiently allocate resources in a society

Question 8

What is the primary role of a market?

Answer 8

to allocate resources efficiently

Question 9

What is the structure of a market economy? (the market system)

Answer 9

Households & Businesses trade G/S on either Resource or Product markets
(6)

Question 10

How many types of economies are there? What are they?

Answer 10

Four;

Traditional Economy: f2f, no bargaining
Market Economy: max profit, no gov’t
Command Economy: prod/supply, gov’t
Mixed Economy: command+market