Learning Outcomes

As a result of watching this programme you should be able to:

• Understand the meaning of the following terms: opportunity cost, scarcity, market economy, planned economy, mixed economy, investment, capital.
• Assess the advantages and disadvantages of planned and market systems.
• Appreciate the problems for an economy of shifting from one system to another.
• Be aware of some of the basic economic choices faced by any society. 

Definitions:

• Capital.  The stock of plant, machinery buildings and equipment held by a firm, individual or government. They are sometimes referred to as fixed capital to distinguish them from stocks of materials, work in progress and finished goods, which are called working capital.

• Capitalism. A form of economic organisation in which the means of production are owned privately rather than by the state.

• Consumption goods.  Products bought by households, the benefts of which are used up in a short time. Examples are food and toothpaste.

• Efficiency: Efficiency is achieved when resources are being used in an optimal way.

• Final goods: Goods sold to consumers. Goods sold to other firms are called intermedi­ate goods.

• Intermediate goods: See Final goods.

• Market economy: An economy in which resources are privately owned and allocated by prices which are free to change in response to changes in supply and/or demand.

• Mixed economy: An economy in which some resources are privately owned and respond to market signals but other resources are owned by the state.

• Opportunity cost: The cost of meeting a want expressed in terms of the output of the next most desired alternative which has to be forgone.

• Opportunity cost curve: A graphical representation of the alternative possible combina­tions of output available to a society at any one time assuming productive efficiency and full employment. Also called a production possibility curvelfrontier.

• Potential output: The level of output that an economy will achieve when it is on its opportunity cost curve.

• Production possibility curve: See Opportunity cost curve.