Econs.txt

the scientific study of the choices made by individuals and societies in regard to the alternative uses of scarce resources which are employed to satisfy wants.

• What to produce.
• Where to produce.
• For whom to produce.

To use positive economics is to be scientific about our observations, that is, to avoid using opinions or value judgements. The tools of positive economics are reason, logic and empiricism.

Economics using value judgements (opinions). For example - the government SHOULD build more hospitals, expresses a value judgement.

Resources are scarce but wants are unlimited.

A free good has no opportunity cost, for example air.

the benefit foregone (given up) from the next best alternative to a particular choice. For example the opportunity cost of building a hospital may be the benefit foregone from building two new schools.

A good that does have an opportunity cost.

Land, labour, capital and enterprise.

• land - rent
• labour - wages
• capital - interest
• enterprise - profit

the maximum possible output of a combination of two different goods or services.

Where the 3 main economic questions are decided by tradition. There is limited division of labour, very little surplus production and not much trade.

Wher the three main economic questions, how, what and for whom to produce, questions are decided by a central authority. E.g. North Korea, or an historic example is the USSR. Both the UK and USA and Germany used a lot of central planning during WWII.

Where the three main economic questions are decided by the interactions of producers and consumers with minimal state intervention. Prices are decided by the interaction of supply and demand. Adam Smith's invisible hand.

an economy where the three main economic questions are decided partly through the free market and partly by central authorities.