2. Ch 1: Review
• Economy: a system in which scarce resources are
allocated.
– scarce: inadequate.
• Economics: the study of allocation of scarce
resources.
• Opportunity cost:
– the next best alternative that is sacrificed when you
make a choice.
– what you give up.
– an opportunity lost.
• Circular Flow Diagram.
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3. Economic Systems
• Command economy:
– most economic decisions are made by a central
planning authority.
• Free-market economy:
– decisions are made by private decision makers.
households and firms.
• Mixed economy:
– some decions by private agents and some by the
government.
• PPC (PPB):
– Production Possibilities Curve (Boundary)
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