GOVERNMENTAL ECONOMICS
1 © Noted Summaries Grade 10 Economics
www.notedsummaries.co.za
, BASIC ECONOMIC CONCEPTS & PRINCIPLES
WHAT IS ECONOMICS? ECONOMIC PROBLEM
social science that examines how individuals, households, and firms SCARCITY PROBLEM
satisfy their unlimited needs and wants with limited and scarce
resources to satisfy the unlimited wants and needs of society with the use of
limited resources
GOVERNMENTAL = impact of the public sector on resource allocation &
distribution → People only have a limited amount of money BUT many needs and
desires to satisfy
→ The government also has a limited amount of money and cannot
NEEDS WANTS satisfy all its desires
= goods and services ESSENTIAL for = human desires for goods and services
basic survival ECONOMIC SYSTEM [3 CENTRAL QUESTIONS]
Z fancy technology
Z Housing & Safety Z trendy clothes/attire 1. OUTPUT QUESTION
Z Food Z Treats (food and gifts)
Z Water → WHAT GOODS AND SERVICES WILL BE PRODUCED
AND IN WHAT QUANTITIES?
OPPORTUNITY COST
DEMAND 2. INPUT QUESTION
= the loss of other alternatives when one
= occurs when consumers are able and alternative is chosen → HOW will each of the goods and services be
willing to buy a product at a certain price = loss of value/benefit that would have been
produced?
caused by participating in a certain activity → HOW MANY of the scarce resources will be used in
= desires become real demand
relative to an alternative activity that
the production of each good
provides a higher return in value or benefit
I want a Ford Figo but have demand = Playoff between wants and needs 3. DISTRIBUTION QUESTION
for a Kia Picanto
= FOR WHOM will the goods and services be produced?
2 © Noted Summaries [Public Economics] = WHO will receive the goods and services?
www.notedsummaries.co.za
, 2 BRANCHES OF ECONOMICS GOODS & SERVICES
GOODS SERVICES
. MICROECONOMICS MACROECONOMICS → tangible objects [food, → intangibles [medical
clothing, houses] services, legal services,
→ individual decisions → functioning of the
financial services]
[consumers, producers, economy as a whole
importers, government, [unemployment, inflation,
exporters, companies] growth, and monetary and FREE GOODS ECONOMIC GOODS
fiscal policy] W not rare = no price [air, sunshine] W goods produced at a cost from
W freely available in unlimited scarce resources (scarce goods)
quantities W limited quantity available
W use value BUT NOT EXCHANGE W requires a price
VALUE W uses & exchange value
W offer out of control of people W offer is controllable
ECONOMIC PROBLEM W Wealth / prosperity = multipliable
in quantity
SCARCITY PROBLEM
FINAL GOODS INTERMEDIATE GOODS
to satisfy the unlimited wants and needs of society with the use of W goods used/consumed [bread] W goods purchased to be used as
limited resources inputs in the production of other
goods
ABSOLUTE SCARCITY
→ when we have enough resources to buy goods but it’s just not PRIVATE GOODS PUBLIC GOODS
W goods consumed by individuals & W use by community in general and
available
consumption by others are consumption by others not
excluded excluded
RELATIVE SCARCITY
CAPITAL GOODS CONSUMER GOODS
→ when there are enough goods to satisfy a population's needs but W goods not consumed, but used in W goods used for consumption by
most of the population is too poor to buy them [developing countries] the production of other goods individuals/households
HOMOGENEOUS GOODS HETEROGENEOUS GOODS
W goods exactly the same W differentiated goods available in
different varieties
3 © Noted Summaries [Public Economics] www.notedsummaries.co.za
, Private goods Public goods
= good that is both excludable and rivalrous > = good that is both non-excludable and non-rivalrous in
individuals can be prevented from consuming the good if consumption. > individuals cannot be excluded from its
they do not pay for it (excludable) and that one benefits, and the consumption of the good by one
person's consumption of the good limits the amount individual does not reduce its availability for others
available for others to consume (rivalrous)
[size > depends on the fraction of the additional revenue
CHARACTERISTICS
CHARACTERISTICS
generated in each round spent in the next round > MPC (Marginal
propensity to consume)]
P free-rider problem = individuals may benefit from the good
P provided in the market by private firms
without contributing to its provision
P allowing for individuals to own and exclude others from
P non-rival, non-excludable goods.
using them
P Non-rival in Consumption > does not reduce the quantity
P Rivalry in consumption reduces availability to other
available for consumption by another person [marginal cost
potential consumers.
of admitting an additional user is zero]
P Excludability restricts consumption to certain persons,
P Non-excludable Public Goods > impossible to exclude persons
triggering competitive processes leading to allocative
from consuming them
efficiency.
P subject to the laws of supply and demand ) The demand curves are 'pseudo demand curves',
Market
requiring accurate revelation of preferences.
Market See discussion of supply and ) market demand curve is derived by adding
demand schedules vertically
demand laws in the next section
) The non-excludability implies that the full
quantity supplied is available to both consumers
) The market demand curve is obtained through the horizontal
) The equilibrium position is defined at the
summation of the quantities demanded by individual consumers. intersection of the market demand curve and
) The consumers are price-takers (must accept the single market price). the total supply curve > condition for the
) They are also quantity-adjusters (must decide which quantities they can efficient provision of a public good is equality
between the marginal cost and the sum of the
afford at the market price.)
marginal utilities of the individual consumers.
) The efficient pricing rule for private goods: P = MC. ) The efficient pricing rule for public goods is the
sum of the individual prices should equal the
4 © Noted Summaries [Public Economics] www.notedsummaries.co.za
marginal cost.
1 © Noted Summaries Grade 10 Economics
www.notedsummaries.co.za
, BASIC ECONOMIC CONCEPTS & PRINCIPLES
WHAT IS ECONOMICS? ECONOMIC PROBLEM
social science that examines how individuals, households, and firms SCARCITY PROBLEM
satisfy their unlimited needs and wants with limited and scarce
resources to satisfy the unlimited wants and needs of society with the use of
limited resources
GOVERNMENTAL = impact of the public sector on resource allocation &
distribution → People only have a limited amount of money BUT many needs and
desires to satisfy
→ The government also has a limited amount of money and cannot
NEEDS WANTS satisfy all its desires
= goods and services ESSENTIAL for = human desires for goods and services
basic survival ECONOMIC SYSTEM [3 CENTRAL QUESTIONS]
Z fancy technology
Z Housing & Safety Z trendy clothes/attire 1. OUTPUT QUESTION
Z Food Z Treats (food and gifts)
Z Water → WHAT GOODS AND SERVICES WILL BE PRODUCED
AND IN WHAT QUANTITIES?
OPPORTUNITY COST
DEMAND 2. INPUT QUESTION
= the loss of other alternatives when one
= occurs when consumers are able and alternative is chosen → HOW will each of the goods and services be
willing to buy a product at a certain price = loss of value/benefit that would have been
produced?
caused by participating in a certain activity → HOW MANY of the scarce resources will be used in
= desires become real demand
relative to an alternative activity that
the production of each good
provides a higher return in value or benefit
I want a Ford Figo but have demand = Playoff between wants and needs 3. DISTRIBUTION QUESTION
for a Kia Picanto
= FOR WHOM will the goods and services be produced?
2 © Noted Summaries [Public Economics] = WHO will receive the goods and services?
www.notedsummaries.co.za
, 2 BRANCHES OF ECONOMICS GOODS & SERVICES
GOODS SERVICES
. MICROECONOMICS MACROECONOMICS → tangible objects [food, → intangibles [medical
clothing, houses] services, legal services,
→ individual decisions → functioning of the
financial services]
[consumers, producers, economy as a whole
importers, government, [unemployment, inflation,
exporters, companies] growth, and monetary and FREE GOODS ECONOMIC GOODS
fiscal policy] W not rare = no price [air, sunshine] W goods produced at a cost from
W freely available in unlimited scarce resources (scarce goods)
quantities W limited quantity available
W use value BUT NOT EXCHANGE W requires a price
VALUE W uses & exchange value
W offer out of control of people W offer is controllable
ECONOMIC PROBLEM W Wealth / prosperity = multipliable
in quantity
SCARCITY PROBLEM
FINAL GOODS INTERMEDIATE GOODS
to satisfy the unlimited wants and needs of society with the use of W goods used/consumed [bread] W goods purchased to be used as
limited resources inputs in the production of other
goods
ABSOLUTE SCARCITY
→ when we have enough resources to buy goods but it’s just not PRIVATE GOODS PUBLIC GOODS
W goods consumed by individuals & W use by community in general and
available
consumption by others are consumption by others not
excluded excluded
RELATIVE SCARCITY
CAPITAL GOODS CONSUMER GOODS
→ when there are enough goods to satisfy a population's needs but W goods not consumed, but used in W goods used for consumption by
most of the population is too poor to buy them [developing countries] the production of other goods individuals/households
HOMOGENEOUS GOODS HETEROGENEOUS GOODS
W goods exactly the same W differentiated goods available in
different varieties
3 © Noted Summaries [Public Economics] www.notedsummaries.co.za
, Private goods Public goods
= good that is both excludable and rivalrous > = good that is both non-excludable and non-rivalrous in
individuals can be prevented from consuming the good if consumption. > individuals cannot be excluded from its
they do not pay for it (excludable) and that one benefits, and the consumption of the good by one
person's consumption of the good limits the amount individual does not reduce its availability for others
available for others to consume (rivalrous)
[size > depends on the fraction of the additional revenue
CHARACTERISTICS
CHARACTERISTICS
generated in each round spent in the next round > MPC (Marginal
propensity to consume)]
P free-rider problem = individuals may benefit from the good
P provided in the market by private firms
without contributing to its provision
P allowing for individuals to own and exclude others from
P non-rival, non-excludable goods.
using them
P Non-rival in Consumption > does not reduce the quantity
P Rivalry in consumption reduces availability to other
available for consumption by another person [marginal cost
potential consumers.
of admitting an additional user is zero]
P Excludability restricts consumption to certain persons,
P Non-excludable Public Goods > impossible to exclude persons
triggering competitive processes leading to allocative
from consuming them
efficiency.
P subject to the laws of supply and demand ) The demand curves are 'pseudo demand curves',
Market
requiring accurate revelation of preferences.
Market See discussion of supply and ) market demand curve is derived by adding
demand schedules vertically
demand laws in the next section
) The non-excludability implies that the full
quantity supplied is available to both consumers
) The market demand curve is obtained through the horizontal
) The equilibrium position is defined at the
summation of the quantities demanded by individual consumers. intersection of the market demand curve and
) The consumers are price-takers (must accept the single market price). the total supply curve > condition for the
) They are also quantity-adjusters (must decide which quantities they can efficient provision of a public good is equality
between the marginal cost and the sum of the
afford at the market price.)
marginal utilities of the individual consumers.
) The efficient pricing rule for private goods: P = MC. ) The efficient pricing rule for public goods is the
sum of the individual prices should equal the
4 © Noted Summaries [Public Economics] www.notedsummaries.co.za
marginal cost.
