MAE101 Final: Economic Principles Exam Notes
Document Summary
Lesson 6: markets are a good way to organize economic activities: centrally planned economy an economy in which the government decides how economic resources will be allocated, market economy economy in which the decisions of households and firms interacting in markets allocate economic resources, households/firms interacting in markets act as if they are guided by an invisible hand" leading them to desirable outcomes, invisible hand idea the buyers/sellers freely interacting in a market economy will create an outcome that allocates g&s to those who need them the most. Lesson 7: govt can sometimes improve market outcomes: govt enforce rules of law e. g. ensure people pay for items produced, need government to correct: market failure situation in which a market left on its own fails to allocate resources efficiently, externalities impact of a households/firms action in the wellbeing of a bystander.