Basic Economic Problem

gjethwani
Mind Map by gjethwani, updated more than 1 year ago
gjethwani
Created by gjethwani almost 5 years ago
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Description

Mind Map on Basic Economic Problem, created by gjethwani on 04/21/2015.

Resource summary

Basic Economic Problem
1 Scarcity
1.1 Opportunity Cost
1.1.1 Next best alternative foregone when a choice is made
1.1.2 Econoic Systems
1.1.2.1 Market System

Annotations:

  • Pure market systems are free of government intervention. Price mechanism is how the three questions are answered which makes the consumer soveriegn.  Price acts as a signal, rationing device and incentive and can transfer preference. Firms respond to increased demands to achieve profits. The invisible hand. Assumption is consumers aim to maximise utility
1.1.2.2 Centrally Planned

Annotations:

  • 100% government influence and the 3 questions are attempted to be answered by them. Failed experiments in Soviet Union and China - Communists. No consumer or producer soveriegnity. Government decides what, how and for whom the produce goes to. Profit is not an objective. Factories get production targets.
1.1.2.2.1 Advantages

Annotations:

  • From each according to ability, to each according to need. Equality No profit so not exploitation
1.1.2.2.2 Disadvantages

Annotations:

  • Bureaucratic Slow decisions Unequal Government does not/cannot know what everyone needs Laziness and low productivity as no profit incentive
1.1.2.3 Mixed Economy

Annotations:

  • Blend of market and planned economies. Quantity varies massively. Most ecnonomies are mixed. Most efficient as benefits of both government intervention and market forces.
1.2 Not enough resources to satisfy human wants and needs
2 3 fundamental economic questions
2.1 What to produce?
2.2 How to produce?
2.3 For whom ar ehte goods produced?
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