01:220:102 Lecture Notes - Lecture 3: Allocative Efficiency, Economic Equilibrium, Demand Curve
1. The Fundamental Economic Questions
1. The Questions
1. What is the best way to use the resources at disposal?
2. What should be produced given our resources?
3. Once it is decided to produce a certain set of goods and services, how
much of each item should be produced?
4. Who will get how much of each good and service?
2. Strategies for Dealing with the Fundamental Economic Questions
1. The Command Economy
1. The central government dictates what will be produced, how much of
each item is produced, and who will get how many of the final
products
2. Communism and socialism
3. Prices can be set by the government
4. Wages can be set so there is no lower class
5. Goods and services usually distributed fairly/equally
6.
2. Capitalism
1. An economic system where supply and demand determine prices
2. Prices, which are determined in free markets, coordinate the economy
1. resolve what and how much will be produced
3. Supply and demand
1. determines a person’s income
2. and therefore how much of the production the person can obtain
for his own use
4. Allocative efficiency
1. resources being deployed to produce just the right amount of
each product to satisfy society’s wants
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01:220:102 Full Course Notes
Verified Note
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