Theme 1: introduction to economics
Basic economic problem: Wants are unlimited while needs are limited
Market: where buyers and sellers meet to exchange goods and services
Types of production
● Primary production: This refers to the production and extraction of natural
resources such as minerals and sources of energy. It also includes output from
agriculture.
● Secondary production: This refers to the output of the manufacturing and
construction sectors of the economy.
● Tertiary production: This refers to the production of services, and includes a wide
range of sectors such as finance, the leisure industry, retailing and transport.
Three main categories of choice that must be made in any society
● What to produce?
● How to produce?
● For whom to produce?
Market theory
● Equilibrium: balance between demand and supply
● Perfectly competitive market: many firms selling an identical product and many
buyers
● Price discrimination: charging certain consumers higher prices than others
because they can afford it
● Monopolistic competition: many firms selling seminal but not identical products
● Oligopoly: a small number of firms dominate the market
● Duopoly: two firm monopoly
● Opportunity cost: the next best opportunity forgone when making a decision
● Marginal cost: the cost of taking a decision
● Marginal benefit: the benefits of taking a decision
● Economics is a social science: it uses scientific methods to study human
behaviour in relation to scarcity of resources
● Microeconomics`; the economics behaviour of individual decision making
● Macroeconomics: the economic behaviour of the economy as a whole
● Opportunity cost: the next best alternative forgone when making a decision
● Private goods: excludability, rivalry
● Public goods: non excludable non rival
● Merit goods: goods that are beneficial for the economy
● Demerit goods: goods that aren't good for the economy but people are willing to
pay for them
, ● Aggregate supply: The total amount that firms plan to supply at any given level of
prices.
● Perfect knowledge: both the buyers and suppliers are aware of the product price
● Freedom of entry: a condition which sellers can freely enter the market for an
economic good by establishing production and selling the good
Theme 2: Economic systems
Economic systems
● Market demand: the total amount which consumers demand a particular price
● Monopoly: only one supplier of a product
● Planned economy: planned by the government
○ Avoids waste of scarce resources
○ Less income inequalities since the state owns factors of production
○ Excess demand will not lead to inflation (controlled prices)
○ No incentive to profit, no motivation to work
○ State bureaucracy grows
● Free market: the market is controlled by demand forces, no government
interference
○ Resources are allocated through money votes
○ Consumers decide what products to produce and suppliers, motivated by
profit, will start producing them
○ However, this means that the wealthy will be control causing economic
disparity
○ May lead to monopoly if competition is imperfect
● Mixed market economy: some government interference in market prices and
resource allocation
○ Combines aspects of free and command markets
○ Solves market failure product while still maintaining the profit motivated
ideology in the market
Why are all economies mixed?
Since it is difficult for a country to sustain economic activity without some degree of
government intervention or market activity
Market failure: inefficient distribution of goods in the market, public and merit goods will
be under provided (No profit)
Neoliberalism
, a political approach that favours free-market capitalism, deregulation, and reduction in
government spending - reduce the power of trade unions, reduce regulations, reducing
rich tax
1. aims to transfer the control of economic factors from the public to private sector
(laissez-faire economics).
2. Emphasis on free market capitalism with limits on government regulation,
government spending and public ownership.
3. Neoliberalism has been associated with policies of austerity, and major cuts on
public spending.
4. Mass monopolisation of businesses
5. Capital deregulation – increase in financial instability
6. Economic inequality – those on the lower earning spectrum, have limited
spending power
Theme 3: Supply and demand
Demand
The total amount of consumers that are willing and able to purchase a product
● Factors influencing demand include:
● Price of the product
● Price of other related products
● Household income (Y)
● Tastes
● Advertising
Supply
The total amount of the product that producers are willing and able to provide at a
particular price
Conditions of supply
● Price of other products
● Price of factors of production
● Costs of production
Types of goods
● Normal good
○ When real income increases, demand for a normal good will increase
● Inferior goods
Basic economic problem: Wants are unlimited while needs are limited
Market: where buyers and sellers meet to exchange goods and services
Types of production
● Primary production: This refers to the production and extraction of natural
resources such as minerals and sources of energy. It also includes output from
agriculture.
● Secondary production: This refers to the output of the manufacturing and
construction sectors of the economy.
● Tertiary production: This refers to the production of services, and includes a wide
range of sectors such as finance, the leisure industry, retailing and transport.
Three main categories of choice that must be made in any society
● What to produce?
● How to produce?
● For whom to produce?
Market theory
● Equilibrium: balance between demand and supply
● Perfectly competitive market: many firms selling an identical product and many
buyers
● Price discrimination: charging certain consumers higher prices than others
because they can afford it
● Monopolistic competition: many firms selling seminal but not identical products
● Oligopoly: a small number of firms dominate the market
● Duopoly: two firm monopoly
● Opportunity cost: the next best opportunity forgone when making a decision
● Marginal cost: the cost of taking a decision
● Marginal benefit: the benefits of taking a decision
● Economics is a social science: it uses scientific methods to study human
behaviour in relation to scarcity of resources
● Microeconomics`; the economics behaviour of individual decision making
● Macroeconomics: the economic behaviour of the economy as a whole
● Opportunity cost: the next best alternative forgone when making a decision
● Private goods: excludability, rivalry
● Public goods: non excludable non rival
● Merit goods: goods that are beneficial for the economy
● Demerit goods: goods that aren't good for the economy but people are willing to
pay for them
, ● Aggregate supply: The total amount that firms plan to supply at any given level of
prices.
● Perfect knowledge: both the buyers and suppliers are aware of the product price
● Freedom of entry: a condition which sellers can freely enter the market for an
economic good by establishing production and selling the good
Theme 2: Economic systems
Economic systems
● Market demand: the total amount which consumers demand a particular price
● Monopoly: only one supplier of a product
● Planned economy: planned by the government
○ Avoids waste of scarce resources
○ Less income inequalities since the state owns factors of production
○ Excess demand will not lead to inflation (controlled prices)
○ No incentive to profit, no motivation to work
○ State bureaucracy grows
● Free market: the market is controlled by demand forces, no government
interference
○ Resources are allocated through money votes
○ Consumers decide what products to produce and suppliers, motivated by
profit, will start producing them
○ However, this means that the wealthy will be control causing economic
disparity
○ May lead to monopoly if competition is imperfect
● Mixed market economy: some government interference in market prices and
resource allocation
○ Combines aspects of free and command markets
○ Solves market failure product while still maintaining the profit motivated
ideology in the market
Why are all economies mixed?
Since it is difficult for a country to sustain economic activity without some degree of
government intervention or market activity
Market failure: inefficient distribution of goods in the market, public and merit goods will
be under provided (No profit)
Neoliberalism
, a political approach that favours free-market capitalism, deregulation, and reduction in
government spending - reduce the power of trade unions, reduce regulations, reducing
rich tax
1. aims to transfer the control of economic factors from the public to private sector
(laissez-faire economics).
2. Emphasis on free market capitalism with limits on government regulation,
government spending and public ownership.
3. Neoliberalism has been associated with policies of austerity, and major cuts on
public spending.
4. Mass monopolisation of businesses
5. Capital deregulation – increase in financial instability
6. Economic inequality – those on the lower earning spectrum, have limited
spending power
Theme 3: Supply and demand
Demand
The total amount of consumers that are willing and able to purchase a product
● Factors influencing demand include:
● Price of the product
● Price of other related products
● Household income (Y)
● Tastes
● Advertising
Supply
The total amount of the product that producers are willing and able to provide at a
particular price
Conditions of supply
● Price of other products
● Price of factors of production
● Costs of production
Types of goods
● Normal good
○ When real income increases, demand for a normal good will increase
● Inferior goods
