2.1 The Three Economic Questions Every Society Faces

Consumers vote in economic affairs with their dollars in a market economy

Economies where the government uses central planning to coordinate most economic activities

An economy that allocates goods and services through the private decisions of consumers, input suppliers and firms

An economy where government and the private sector together determine the allocation of resources

The one that conserves the relatively scarce (more costly) resources and uses more of the abundant (less costly) resources. When capital is relatively scarce and labour is plentiful, production tends to be labour-intensive >< capital-intensive

In a market economy, the amount of goods and services one is able to obtain depends on one's income. The amount of one's income depends on the quantity and quality of the scarce resources that the individual controls.

The markets for consumer goods and services. Household are buyers and firms are sellers. Household buy the goods and services that firms produce and sell.

The market where households sell the use of their inputs (capital, land, labour, and entrepreneurship) to firms

The continuous flow of inputs and outputs in an economy. Household makes inputs available to

The continuous low of income and expenditure in an economy

The potential total output combinations of any two goods for an economy, given the inputs and technology available = an economy's potential for allocating its limited resources in producing various combinations of goods in a given time period.

Requires society to use its resources to the fullest extent - no wasted resources. If the economy is operating within the production possibilities curve, the economy is operating inefficiently.

As more of one item is produced by an economy, the opportunity cost of additional units of that product rises.

The cost of altering production within the production possibilities curve frame work, at efficiency, is measured in forgone units of the sole alternative.