1、Clothing?,Defence?Health care?Roads?,$100bn,Opportunity cost,Opportunity cost is the cost of choice What would you buy with US$10?How should the government spend US$250 million?(Or,should the government cut taxes by US$250 million?)What occupation will you choose when you finish your studies?How sho
2、uld a new business invest US$20 million?Should we conserve more natural resources?and what are the next best alternatives foregone?,Production possibility curves,A firm producing cars and trucksWhat is the opportunity cost of producing 20 more trucks?,An economy producing consumer goods and capital
3、goods What is the opportunity cost of producing 15 more tonnes of consumer goods?,Production possibility curves,Production possibility curves,Production possibility curves(PPCs)show the maximum combined output of two or more products a firm or an entire economy can produce with its available resourc
4、esResources are being used efficiently if they are producing their maximum outputBut,because resources are limited,producing more of one product means producing less of another PPCs are therefore a useful way of showing the opportunity cost of producing more of one product in terms of how much of an
5、other must be given up,IGCSE/O Level Economics,2.1 Economic systems,S2,Resource allocation,Because productive resources are scarce relative to human wants we must decide:,Economic systems,Who in an economy decides what goods and services to produce,how to produce them and who to produce them for,and
6、 how are these decisions are made?,Economic systems,China Cuba,North Korea,DenmarkFranceItalySwedenUKMany developed economies,ArgentinaMauritiusNepalParaguay,BahamasSingapore,The market economic system,Private sector producers,Consumers,Goods and services,Money,Production,Exchange,Consumption,In a f
7、ree market economic system all decisions are taken by private sector organizations and individuals.There is little or no role for government or a public sector and therefore little or no taxation or public spending.,The price mechanism,A market is any set of arrangements that brings together all the
8、 producers and consumers of a good or service so that they can engage in exchange.,Private firms produce goods and services to maximize their profits,Consumers consume goods and services to maximize their utility(satisfaction),As consumer demand for a product rises,Production becomes more profitable
9、,so producers increase output,Production becomes less profitable,so producers reduce output,Market price and quantity traded,MARKET PRICE RISES,MARKET PRICE FALLS,As consumer demand for a product falls,Whats good about the market system?,A wide variety of goods and services will be produced to satis
10、fy consumer wantsFirms respond quickly to changes in consumer wants and spending patternsThe profit motive of firms encourages them to develop new products and use the most efficient methods of productionThere are no taxes,Profits can be increased by increasing sales and/or reducing costs of product
11、ion,If consumer demand is rising,prices will rise and production becomes more profitable.Entrepreneurs will allocate resources to their most profitable uses,There is no public sector in a totally free market economic system,How the market system can fail,Market failure:when free markets fail to prod
12、uce goods and services that are worthwhile or when the decisions of producers or consumers result in wasteful or harmful activities,NATIONAL PARK,How the market system can fail,Market failure:when free markets fail to produce goods and services that are worthwhile or when the decisions of producers
13、or consumers result in wasteful or harmful activities,The mixed economic system,In a mixed economy a government can intervene in different markets in an attempt to correct the worst market failures:It can provide useful and essential goods and servicesIt can provide goods and services for people in the greatest needIt can employ people in public sector organizations and provide financial support to private sector firms to boost output and employmentI
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