Chapter 2 Tools of the economist Because value of a good is subjective it creates a trade and this creates VALUE 1 When Individuals engage in voluntary exchange both parties are made better off 2 Channeling goods and resources to those who value them most increases the wealth created by a society s resources Process of one becoming rich makes everyone richer Property Rights The right to exclusive use Legal protection and right to sell transfer exchange or mortgage the property INCENTIVES 1 Use resources that are beneficial to others 2 Care and manage what they own 3 Conserve for the future 4 Lack of property rights lack of economic progress Production possibilities curve PPC Incentive to make sure their property doesn t damage your property outlines all possible combinations of total output that could be produced assuming o fixed amt of resources o given amount of knowledge o full and efficient use of the resources Effiecnt unefficent unattainable points Factors that shift the PPC curve 1 change in resources a investment purchase construction or development of resources the loss of consumption goods 2 changes in technology knowledge available technology determines the amt of output we can generate w our limited resources 3 a change in the rules under w c the economy functions 4 change in work habits Law of comparative advantage Total output will be the greatest when the output of each good is produced by whoever has the lowest oppor Cost Economic organization faces 3 questions How will it be produced what will for whom Capitalism system of economic organization where resources are privately owned and where resources are allocated through market prices Market organization private parties make their own plans and decisions with guidance of market prices Socialism system where ownership and control of means rest with state Collective decision making method of organization that relies on sector to resolve economic questions Why does capitalism seem to work and socialism doesn t Uses strategies with the market efficiently and socialism suffers from a info problem
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