ECON-E 201 Lecture Notes - Lecture 1: Price System, Opportunity Cost, Deadweight Loss
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Means of production are centrally owned and controlled. Without private property- means of production are centrally owned which eliminates private property. We do not know the opportunity cost because we don"t have clear prices (knowledge problems) Soviet union (1920"s) was strong with production but the average citizen did not live well due to socialist structure. Price solve knowledge problem found in socialism. They align self-interest with social interest-- incentives. It is not out of benevolence that the butcher, the baker, and the brewer provide us with our dinner but in regards to their own self interest. -adam smith. Shows how incentive for self- interest benefits public good. Prices are the key force integrating markets and motivating entrepreneurs. Consumers compare value of their use of a good with the value of the good"s alternative uses- opportunity cost. Consumers then have an incentive to give up the good if their uses have a lower value than the alternative uses.
