Economic Efficiency & Resource Allocation

• Economics is the study of how society manages its scarce resources.
• Getting one thing typically means giving up another, requiring trade-offs between goals.
• Decision-making involves trading off one goal against another.

Efficiency vs. Equity

• Efficiency means society maximizes the use of its scarce resources.
• Equity refers to the fair distribution of resource benefits among society's members.

Resource Allocation

• Countries must decide how to allocate scarce resources to maximize efficiency.
• Key questions include what goods and services should be produced, how they should be produced, and who should receive them.
• Another important consideration is how much government intervention is needed to achieve efficiency.

Market Economy vs. Central Planning

• Capitalism features private ownership of production means and decentralized decision-making through the price system.
• Socialist economies are characterized by public ownership and centralized decision-making.
• Most economies today are mixed.

Regulation

• Regulation involves property rights, public ownership industries, taxes, price or quantity controls, labor market, environmental, financial regulations, trade.

Market Structures

• Market structures include perfect competition, monopoly, oligopoly, and monopolistic competition.

Perfect Competition

• Large numbers of firms and consumers take part
• Homogenous goods are sold
• Perfect information is available
• In perfect competition there are no public goods or externalities.

Demand, Supply, and Equilibrium

• The individual demand curve illustrates the relationship between price and quantity demanded.
• The Law of Demand states that demand decreases as prices increase, under "ceteris paribus" conditions.
• Market demand curves represent the sum of individual demand curves.
• Changes occur along the demand curve due to price changes, while curve shifts indicate other factors.

Factors Shifting Market Demand

• Consumer income, prices of related goods, expectations, tastes, and the number of buyers can shift market demand.
• Higher income increases demand for normal goods but decreases demand for inferior goods.
• Higher prices for substitutes increase demand, while higher prices for complementary goods decrease demand.

Individual Supply

• The individual supply curve illustrates the relationship between price and quantity supplied by a company.
• The Law of Supply states that supply increases as price increases, "ceteris paribus".
• Market supply is the sum of individual firm supply curves.
• Changes occur along the supply curve due to price changes, while curve shifts indicate other factors.

Factors Shifting Market Supply

• Input prices, technological change, expectations, and number of sellers can shift market supply.

Market Equilibrium

• Equilibrium is reached when demand equals supply.
• The equilibrium price is where the demand and supply curves intersect.
• Disequilibrium leads to either excess demand or excess supply.
• Changes in equilibrium prices and quantities are analyzed by determining which curves are shifting and using supply/demand diagrams.

Importance of Studying Economics

• Economics is a vital pillar of peace and democracy.
• Constructive dialogue between the government and its citizens is fostered through economics.
• Without Intellectual discipline only violence and dictatorship would remain.