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Juvenile Diabetes Research Foundation
1. discoveries
JDRF
Juvenile
Diabetes
Research
Foundation
International
d e d i c a t ed to finding a cure
Westchest er Co unt y Cha pt er
Spr i ng 2 009
President’s Letter... 2008 Walk Awards Ceremony
The response an economy makes to the first ques-
tion—What to produce?—depends on the goods
and services a society wants. In a communist
state, the government will decide what a society
wants, but in a capitalist economy consumers are
allowed to signal what products they want by way
of their demands for specific commodities. In the
As we have seen, every country has to decide what to pro-
next chapter, we will investigate how the con-
sumer demand for individual products is deter-
duce, how to produce it, and decide who receives the output. With
mined and how markets meet these demands. For
the first two questions countries desire to do each as efficiently as
now, we will assume that consumers, individually
possible, but this leads to two different aspects of efficiency.
and as a society, are able to decide on the mix of
goods and services they most want, and that pro-
Production efficiency occurs when the mix of goods society
ducers supply these items at acceptable prices.
Once we know what goods a society wants,
decides to produce is produced at the lowest possible resource or
the next question its economic system must
opportunity cost. decides to produce is produced at the lowest pos-
answer is how these goods and services are to be
sible resource or opportunity cost. Alternatively, production effi
produced. In the end, this problem comes down
to the simple question of how labor, capital, and
resources. Firms use the best technology available and combine
land should be combined to produce the desired
the otherAlternatively, production effi resources. Firms use the
products. If a society demands a huge amount of
best technology available and combine the other resources to pro-
corn, say, we can expect its utilization of land,
labor, and capital will be different from a society
duce products at the lowest cost to society.
that demands digital equipment. But even an
Allocative efficiency occurs when the mix of goods and services
economy devoted to corn production could be
organized in different ways, perhaps relying on
produced are the most desired by society. In capitalist countries
extensive use of human labor, or perhaps relying
this is determined by consumers and businesses ciency requires
on automated capital equipment.
that the right mix of goods be produced at the lowest cost.
Once an economy has determined what
goods and services to produce and how to pro-
Every economy faces constraints or limitations. Land, labor, capi-
duce them, it is faced with the distribution ques-
tion: Who will get the resulting products? cates
tal, and entrepreneurship are all limited. No country has an infinite
the goods and services it produces to consumers.
decides to produce is produced at the lowest possible resource or
In a capitalist economy, most products are distrib-
opportunity cost. Alternatively, production effi resources. Firms
uted through private markets. In a socialist econ-
omy, many goods are produced in state-owned
available workers, or the space and machinery that would be
facilities. Theoretically, governments in socialist
needed to put them all to work; no country can break free of these
economies use tax monies to subsidize producers,
natural restraints. Such limits are known as production possibili-
to consumers. In a capitalist economy, most prod-
ucts are distributed through private maron their
ties frontiers (PPFs) and they are the focus of the next section.
efficiency and the quality of their products.
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