Understanding Key Economic Concepts and Systems

Key Economic Concepts and Systems

Technology: Refers to the methods used to combine various factors of production to create a good or service.

Production Possibilities Frontier (PPF)

The PPF illustrates the maximum quantities of goods and services that a society can produce within a given time period, considering its available factors of production and technological knowledge.

Economic Growth

Economic Growth is the increased value of the production of goods and services by a company or economy over a period of time.

Productivity

Productivity is the relationship between the quantity of goods and services produced and the factors used in their production.

Concepts Illustrated by the PPF:

• Scarcity of Resources: Limited resources determine the number of units produced.
• Opportunity Cost: Obtaining additional quantities of one product requires transferring resources from the production of another.
• Potential Output: The maximum production an economy can achieve.

How to Achieve Economic Growth:

• Increasing Production Factors: Utilizing more resources, workers, facilities, or capital.
• Improving Productivity: Producing more output with the same number of production units.

Economic Systems

An economic system describes how society is organized to meet its needs with scarce resources, while establishing distribution methods for the population.

Key Questions Answered by Economic Systems:

• What is needed, and how much should be produced?
• How should these goods and services be produced and distributed?
• Who should be the producer?

Characteristics of a Market Economy and its Limitations:

• Companies produce what families demand, provided it is profitable.
• Companies choose the factors of production and technology to use.
• Goods and services are produced for those who can afford them.

Limitations: Cyclical instability, shortages of unprofitable goods, environmental degradation, abuses by certain companies, and unequal income distribution.

Characteristics of a Centrally Planned Economy:

The state is the sole economic agent. There is an emphasis on equal income distribution. The state plans all aspects of the economy: resource allocation, production methods, wages, production goals, investments, etc.

Characteristics of a Mixed Economy and the Role of the State:

In a mixed economy, the public sector intervenes in certain areas. It establishes a legal and institutional framework, including minimum wage laws, working hour regulations, and environmental protection. It also provides public goods such as education and healthcare, redistributes income, and aims to mitigate cyclical instability.