Universal Economic Problem (UEP) and Types of Economies

The UEP is how to use scarce resources to satisfy unlimited wants and needs.

The three questions are: What goods and services are to be produced and in what quantities? How are those goods and services to be produced? Who will receive and consume those goods and services?

A Free market economy is based on supply and demand with little or no government control.

The three types of economies are Free market economy, Command economy, and Subsistence economy.

A Command economy is where the government decides what goods to produce, as well as the price and quantity of production.

A Subsistence economy is directed towards food, clothing, and shelter, often found in developing and underdeveloped countries.

Productive efficiency is achieved if the economy is producing ON the PPC.

Allocative efficiency is achieved at the point on the PPC where the economy produces.

Opportunity cost is the cost-benefit principle where something is chosen only if the extra benefit is greater than the extra cost.

Explicit costs are normal business costs with clearly defined dollar amounts, while implicit costs represent opportunity costs that have already occurred.

Economies can push their curve out through innovation, productivity improvements, and immigration.

Multi-factor Productivity (MFP) is defined as output per unit of combined inputs.