Economics Microeconomic
Topic 1
Economics – A social science which studies economic relationships
between individuals and firms.
Economic Methodology – 1) Observe a certain behaviour in society
2) Formulate hypothesis about behaviour.
3) Develop prediction about human behaviour
4) Use evidence to test prediction (Evidence supports = New economic
theory & Evidence against = Rejected theory)
Normative Statements – Opinions that require value judgements –
depend on individual – cannot be tested/verified – difficult to calculate its
implications. (Subjective)
Positive Statements – Can be tested against real world data – do not
include personal opinion or influences. (Objective)
Fundamental Economic Problem – There are unlimited needs and wants
but limited resources to produce these goods and services = Scarcity – Not
enough resources to satisfy demands of everyone (choices need to be
made)
Solution – Decide: 1) What to produce (2) How to produce (3) For whom
to produce.
Economic Welfare – Economic well-being of an individual, group within
society or an economy (Measured by: 1) How they feel (2) How much they
have (3) How good their standard of living is (4) Physical well-being)
Goods – Physical items that we can buy and use (tangible)
Services – Intangible process that we use to provide satisfaction.
Factors of Production – Inputs into the production process. There are 4
FoP’s: Capital, Enterprise, Land & Labour
,Capital – Producer goods which is used in the production of other goods or
services e.g. machinery, tractor…
Enterprise – Risk takers who bring factors of production together and
make goods & services e.g. entrepreneurs.
Land – Goods like minerals and all resources we take from the land – both
renewable and non-renewable e.g. fish, oil…
Labour – All the potential workforce
Factor Incomes – Rewards/payments to owners when they sell/loan FoP’s.
1) Land -> Rent (2) Labour -> Wage (3) Capital -> Interest
(4) Enterprise -> Profit
Opportunity Cost – Next best alternative forgone (given up) when an
economic decision is made.
Economic Good – Goods that are finite in their use and have an
opportunity cost.
Free Good – Goods that have no opportunity cost.
Productive Possibility Frontier – Shows maximum output achieve of a
combination of goods/services when using a fixed set of resources in a
particular time period.
Productive Efficiency – Producing maximum output possible of two goods
with given resources and technology (no resources wasted, producing at
minimum average costs)
Allocative Efficiency – Allocation of resources produce a combination of
goods that best accords consumer preferences.
Economic Growth – When the number of goods and services the economy
produces increases.
Factors Causing Growth – 1) New Resources (Any element of ‘CELL’) (2)
Technology improvements (3) Improved quality of resources.
Factors Causing Decline – 1) Emigration (2) Diseased (3) Weather
(4) Poor management and organisation (5) Lower education quality –
Human Capital (6) Natural Disasters
, Topic 2
Market – Voluntary meeting of buyers and sellers who are willing to
exchange.
Demand – Quantity that consumers are willing and able to buy at a given
price in a given time period.
Law of Demand – Inverse relationship between price and quantity
demanded. – When price of good increases, consumers have a greater
opportunity cost.
Determinants of Demand (PED) – ‘NASBIT’
N – Necessity/Luxury
A – Addiction/Habit
S – Substitutes (How many substitutes are available)
B – Brand Loyalty
I – Income Proportion
T – Time Period
Conditions of Demand – ‘PAPPIT’
P – Population Size
A – Advertising
P – Price of complementary goods
P – Price of substitute goods
I – Income Levels and/or Interest Rates
T – Trends/Fashion
(Exceptions where demand and price have a positive relationship)
Speculative Demand – If price of assets begin to rise, people speculate a
further increase in price in future.
Quality Indicators – High price indicates high quality, so demand
increases.
Veblen Goods – Goods of exclusive consumption (limited edition)
Topic 1
Economics – A social science which studies economic relationships
between individuals and firms.
Economic Methodology – 1) Observe a certain behaviour in society
2) Formulate hypothesis about behaviour.
3) Develop prediction about human behaviour
4) Use evidence to test prediction (Evidence supports = New economic
theory & Evidence against = Rejected theory)
Normative Statements – Opinions that require value judgements –
depend on individual – cannot be tested/verified – difficult to calculate its
implications. (Subjective)
Positive Statements – Can be tested against real world data – do not
include personal opinion or influences. (Objective)
Fundamental Economic Problem – There are unlimited needs and wants
but limited resources to produce these goods and services = Scarcity – Not
enough resources to satisfy demands of everyone (choices need to be
made)
Solution – Decide: 1) What to produce (2) How to produce (3) For whom
to produce.
Economic Welfare – Economic well-being of an individual, group within
society or an economy (Measured by: 1) How they feel (2) How much they
have (3) How good their standard of living is (4) Physical well-being)
Goods – Physical items that we can buy and use (tangible)
Services – Intangible process that we use to provide satisfaction.
Factors of Production – Inputs into the production process. There are 4
FoP’s: Capital, Enterprise, Land & Labour
,Capital – Producer goods which is used in the production of other goods or
services e.g. machinery, tractor…
Enterprise – Risk takers who bring factors of production together and
make goods & services e.g. entrepreneurs.
Land – Goods like minerals and all resources we take from the land – both
renewable and non-renewable e.g. fish, oil…
Labour – All the potential workforce
Factor Incomes – Rewards/payments to owners when they sell/loan FoP’s.
1) Land -> Rent (2) Labour -> Wage (3) Capital -> Interest
(4) Enterprise -> Profit
Opportunity Cost – Next best alternative forgone (given up) when an
economic decision is made.
Economic Good – Goods that are finite in their use and have an
opportunity cost.
Free Good – Goods that have no opportunity cost.
Productive Possibility Frontier – Shows maximum output achieve of a
combination of goods/services when using a fixed set of resources in a
particular time period.
Productive Efficiency – Producing maximum output possible of two goods
with given resources and technology (no resources wasted, producing at
minimum average costs)
Allocative Efficiency – Allocation of resources produce a combination of
goods that best accords consumer preferences.
Economic Growth – When the number of goods and services the economy
produces increases.
Factors Causing Growth – 1) New Resources (Any element of ‘CELL’) (2)
Technology improvements (3) Improved quality of resources.
Factors Causing Decline – 1) Emigration (2) Diseased (3) Weather
(4) Poor management and organisation (5) Lower education quality –
Human Capital (6) Natural Disasters
, Topic 2
Market – Voluntary meeting of buyers and sellers who are willing to
exchange.
Demand – Quantity that consumers are willing and able to buy at a given
price in a given time period.
Law of Demand – Inverse relationship between price and quantity
demanded. – When price of good increases, consumers have a greater
opportunity cost.
Determinants of Demand (PED) – ‘NASBIT’
N – Necessity/Luxury
A – Addiction/Habit
S – Substitutes (How many substitutes are available)
B – Brand Loyalty
I – Income Proportion
T – Time Period
Conditions of Demand – ‘PAPPIT’
P – Population Size
A – Advertising
P – Price of complementary goods
P – Price of substitute goods
I – Income Levels and/or Interest Rates
T – Trends/Fashion
(Exceptions where demand and price have a positive relationship)
Speculative Demand – If price of assets begin to rise, people speculate a
further increase in price in future.
Quality Indicators – High price indicates high quality, so demand
increases.
Veblen Goods – Goods of exclusive consumption (limited edition)
