ECON 203 Lecture 2 Outline of Last Lecture I Main Idea II Types of Capital III Goal of Economics Outline of Current Lecture I Main Idea II Production Possibility Curve PPC III Economic System Current Lecture Main Idea The Main Economic Problem is resource Scarcity Resources depend on the time and technology what is useful to society Oil wasn t considered a resource for people 800 years ago but it is today Production is the conversion of resources to a good that can produce Capital and increase Economic Capability PPC One of the main tools Economists use to show Production Possibility Curve PPC This shows all conceivable combinations of how to allocate resources when narrowed down to two goods to produce This graph shows what happens in the SHORT RUN Points on the curved line B C D show all conceivable combinations of resources IF the economy is running at MAXIMUM efficiency Points inside of the line A show all combinations of resources IF the economy is running at LESS than maximum efficiency Points outside the curved line X are UNATTAINABLE since it is running at more than max effieciency Economic Growth is shown when the Curved line moves OUTWARD into PREVIOUSLY UNATTAINABLE area Economic Systems There are many different types of economic systems at base they are just large algorithms adjusted to fit the nations environment and needs The System is the rule procedure for addressing the issue of economic system which is to determine which point on the PPC do we choose and why how do we allocate our resources and why Two Examples and opposites would be Command and Control Economy and a PURE Free Market Economy PURE Capitalism Command Control Communism A Central Government Authority decides how to allocate resources for a certain production level point on the PPC and then pass that down to the companies to produce that point no more no less In this way of thinking it s supposed to establish unified production for the good of the people Pure Free Market Economics Pure Capitalism The Market spontaneously organizes itself letting the laws of supply and demand dictate production levels in order to produce a functioning economy