ECONOMICS NOTES - THEME 1
THE NATURE OF ECONOMICS
Economics - a social science
Economic Models = simplified versions of reality so economic behaviours may be
tested. Assumptions are used In order to simplify economic processes so that it
is easier to understand.
Ceteris Paribus = all other things considered unchanged. - ruled out the
possibility of other factors changing.
POSITIVE AND NORMATIVE STATEMENTS
Positive Statements = statements of fact which can be tested against real world
evidence. They can be proven true or false. They are OBJECTIVE
Normative Statement = matters of opinion which cannot be proved or disproved.
- VALUE JUDGMENT ( ought/should)
THE ECONOMIC PROBLEM
The economic problem = infinite wants and limited resources. — The problem of
scarcity of resources resulting to OPPORTUNITY COST
Opportunity Cost = the next best alternative forgone when making economic
decisions.
Resources = inputs used in the production of things that we desire. When
resources are productive the are called FACTORS OF PRODUCTION
Free Good = a good which is unlimited In supply. Therefore it is not scarce and
had no opportunity cost.eg: Sunlight/air.
Economic Goods = goods that involve opportunity cost. Even if they are offered
free of charge.
( do not confuse free goods and free of charge goods )
RESOURCES
1. Labour - physical and mental human effort used to create goods and
services.
-Human capital -education and training.—REWARD -wages/salary
Wages - rate per hour , paid weekly
Salaries - fixed amount paid monthly
Sectors in which workers are employed:
1) Primary — industries involved in extracting raw materials and food -
eg. Agriculture and fishing
2) Secondary — manufacturing industries / building and construction - eg.
Publishing, housing, jewellery.
THE NATURE OF ECONOMICS
Economics - a social science
Economic Models = simplified versions of reality so economic behaviours may be
tested. Assumptions are used In order to simplify economic processes so that it
is easier to understand.
Ceteris Paribus = all other things considered unchanged. - ruled out the
possibility of other factors changing.
POSITIVE AND NORMATIVE STATEMENTS
Positive Statements = statements of fact which can be tested against real world
evidence. They can be proven true or false. They are OBJECTIVE
Normative Statement = matters of opinion which cannot be proved or disproved.
- VALUE JUDGMENT ( ought/should)
THE ECONOMIC PROBLEM
The economic problem = infinite wants and limited resources. — The problem of
scarcity of resources resulting to OPPORTUNITY COST
Opportunity Cost = the next best alternative forgone when making economic
decisions.
Resources = inputs used in the production of things that we desire. When
resources are productive the are called FACTORS OF PRODUCTION
Free Good = a good which is unlimited In supply. Therefore it is not scarce and
had no opportunity cost.eg: Sunlight/air.
Economic Goods = goods that involve opportunity cost. Even if they are offered
free of charge.
( do not confuse free goods and free of charge goods )
RESOURCES
1. Labour - physical and mental human effort used to create goods and
services.
-Human capital -education and training.—REWARD -wages/salary
Wages - rate per hour , paid weekly
Salaries - fixed amount paid monthly
Sectors in which workers are employed:
1) Primary — industries involved in extracting raw materials and food -
eg. Agriculture and fishing
2) Secondary — manufacturing industries / building and construction - eg.
Publishing, housing, jewellery.
