IMG_1030.jpeg

# Economic Concepts ## Production Possibility Frontier (PPF) **Straight PPF:** Opportunity costs are constant to produce either good. **Curved PPF:** Increasing opportunity costs to produce one good. **Trade-offs:** The PPF illustrates trade-offs involved in devoting more resources to one good....

# Economic Concepts ## Production Possibility Frontier (PPF) **Straight PPF:** Opportunity costs are constant to produce either good. **Curved PPF:** Increasing opportunity costs to produce one good. **Trade-offs:** The PPF illustrates trade-offs involved in devoting more resources to one good. **Opportunity Cost:** What is given up to produce more of one good. **Efficiency:** Utilizing resources to produce the maximum amount of goods or services. ## Needs vs. Wants **Needs:** Necessary for survival. **Wants:** Desires leading to happiness. ## Adam Smith's Invisible Hand Theory Explains how individual self-interest promotes the well being of society as a whole. ## Laissez Faire Principle that the government should not interfere with the economy's operation. ## Goods vs. Services **Goods:** Produced for sale or use. **Services:** Work done by another individual for which a customer, business, or government would pay. ## Fundamental Economic Questions 1. What goods and services should be produced? 2. How should they be produced? 3. Who should get the produced goods and services? ## Circular Flow Model **Factor Market:** Households sell factors of production (land, labor, capital) to firms, firms pay for them. **Product Market:** Firms sell goods and services to households, households pay for them. **Government:** Government receives taxes from Households and Firms. Government provides goods and services to the economy. **Payments:** Social security checks, welfare payments, unemployment benefits. ## Command Economy **Advantages:** * Quick allocation of resources * Increased employment rates * Reduced inequality **Disadvantages:** * No individual freedom * Lack of incentives to work hard * Lack of consumer choice * Abuse of power * No choices