Economics week 1
The Economic Problem
(scarcity forms the basis of economics)
Scarcity - limited in supply and in demand.
Not all resources are scarce.
System for allocating scarce resources : Economic System.
The basic problem of economics. Scarcity necessitates choices
When there are competing wants and needs of society, yet a limited amount of resources,
choices must be made about how to allocate scarce resources efficiently (equitably)
If Goods and Services were not scarce there would not be a price with it.
Opportunity cost - the best alternative foregone. ( the need/want that you miss out on)
Definition of Economics - The Social science that studies the allocation of scarce resources
between societies competing wants and needs.
Economic Systems - The means by which society chooses to allocate scarce resources - who
will get them, what will be produced with them, and who will receive the finished output
(3 basic economic questions)
Macroeconomics - Its the branch of economics that studies the overall working of the national
economy. (Government, Industries, Central Bank)
- It can help answer questions like how trade barriers may affect local businesses and the
unemployment rate.
Microeconomics - Studies the choices of individuals
(eg. how someone spends their wages)
Production - process where factors of production are used to produce goods and services to
satisfy needs and wants.
Consumption - where goods and services used up to satisfy needs and wants.
Exchange - Money is swapped for goods and services, bartering involves goods/services
exchanged for other goods/services.
Factors of Production:
(4 main factors of production)
Land - income or rent.
, - covers all natural resources including; water, trees, oil etc.
Labor - wages and salaries
- Labor/human resources provide the physical and mental effort required to sell goods and
services.
Capital - Interest that is earned.
- Capital is the man made resources used in the production of goods and services.
- Also refers to the money used to start a business
Entrepreneurship - entrepreneur is someone who takes the financial risk to start their own
business.
The Fundamental Economic Problem
Based on scarcity individuals, government and businesses make choices. Based on these
choices economic systems are formed. These choices made are called Opportunity Cost
Production Possibilities Curve
PPC - shows the different combinations of two goods that can be produced using full
employment of resources with the given quality and quantity of resources and technology.
Graphs show the Idea of Scarcity and Opportunity cost.
Scarcity is shown that production cannot go beyond the graph
Opportunity cost is sacrificing one product for another
More production = more efficient.
Anything within the curve is inefficient.
Straight line on graph - Constant opportunity cost
Curved line on graph - increasing opportunity cost
Law of increasing opportunity cost - when all resources are being used and increase in the
production leads to production of another good being lost.
What shifts the PPC:
- Change in the quantity or quality of resources
- Change in technology
- Specialization and trade
Specialization and Trade:
Trade allows countries to consume more goods than they are able to produce.
,Outward shift in the PPC:
- Outward shift shows economic growth
- Due to the increase in quality or quantity of technology or resources.
- Eg. net immagration, discovery of resources, increase in population of working age and
increased education
Inward Shift in the PPC:
- An inward shift shows a failure in the economic growth.
- This could be due to a decrease in quality or quantity of the technology and resources.
- Eg: net immagration, natural resources becoming exhausted or decrease in population
of working age
, Economics Week 2
The Basic Question of what will be produced
The three Basic economic questions:
- What to produce
- How to produce
- For whom to produce
These three questions must be answered by firms, individuals and governments.
Primary, secondary and tertiary sectors of an economy:
Primary Secondary Tertiary
First stage of production Second stage of production known as the service sector
process process
Extraction of raw materials Makes use of the raw a business that provides
materials from the primary services to other businesses
sector or individuals
Provides raw materials from large tertiary sector usually
which goods and services are means a country is
mad in the secondary sector developed.
Eg. fishing, farming, mining Eg. and manufacturing and Examples: banking,
building education, insurance
Private sector:
- Part of the economy that owned and controlled by private individuals and firms who aim
to make a profit
Public sector:
- Part of the economy owned and controlled by the government.
- Businesses in the public sector are called public corporations, their aim is to provide
affordable services to the public.
Economic systems:
- Each country’s economic system answers the three main questions
- The system decides what goods and services to produce for who and how
- (what, who and how)
The Economic Problem
(scarcity forms the basis of economics)
Scarcity - limited in supply and in demand.
Not all resources are scarce.
System for allocating scarce resources : Economic System.
The basic problem of economics. Scarcity necessitates choices
When there are competing wants and needs of society, yet a limited amount of resources,
choices must be made about how to allocate scarce resources efficiently (equitably)
If Goods and Services were not scarce there would not be a price with it.
Opportunity cost - the best alternative foregone. ( the need/want that you miss out on)
Definition of Economics - The Social science that studies the allocation of scarce resources
between societies competing wants and needs.
Economic Systems - The means by which society chooses to allocate scarce resources - who
will get them, what will be produced with them, and who will receive the finished output
(3 basic economic questions)
Macroeconomics - Its the branch of economics that studies the overall working of the national
economy. (Government, Industries, Central Bank)
- It can help answer questions like how trade barriers may affect local businesses and the
unemployment rate.
Microeconomics - Studies the choices of individuals
(eg. how someone spends their wages)
Production - process where factors of production are used to produce goods and services to
satisfy needs and wants.
Consumption - where goods and services used up to satisfy needs and wants.
Exchange - Money is swapped for goods and services, bartering involves goods/services
exchanged for other goods/services.
Factors of Production:
(4 main factors of production)
Land - income or rent.
, - covers all natural resources including; water, trees, oil etc.
Labor - wages and salaries
- Labor/human resources provide the physical and mental effort required to sell goods and
services.
Capital - Interest that is earned.
- Capital is the man made resources used in the production of goods and services.
- Also refers to the money used to start a business
Entrepreneurship - entrepreneur is someone who takes the financial risk to start their own
business.
The Fundamental Economic Problem
Based on scarcity individuals, government and businesses make choices. Based on these
choices economic systems are formed. These choices made are called Opportunity Cost
Production Possibilities Curve
PPC - shows the different combinations of two goods that can be produced using full
employment of resources with the given quality and quantity of resources and technology.
Graphs show the Idea of Scarcity and Opportunity cost.
Scarcity is shown that production cannot go beyond the graph
Opportunity cost is sacrificing one product for another
More production = more efficient.
Anything within the curve is inefficient.
Straight line on graph - Constant opportunity cost
Curved line on graph - increasing opportunity cost
Law of increasing opportunity cost - when all resources are being used and increase in the
production leads to production of another good being lost.
What shifts the PPC:
- Change in the quantity or quality of resources
- Change in technology
- Specialization and trade
Specialization and Trade:
Trade allows countries to consume more goods than they are able to produce.
,Outward shift in the PPC:
- Outward shift shows economic growth
- Due to the increase in quality or quantity of technology or resources.
- Eg. net immagration, discovery of resources, increase in population of working age and
increased education
Inward Shift in the PPC:
- An inward shift shows a failure in the economic growth.
- This could be due to a decrease in quality or quantity of the technology and resources.
- Eg: net immagration, natural resources becoming exhausted or decrease in population
of working age
, Economics Week 2
The Basic Question of what will be produced
The three Basic economic questions:
- What to produce
- How to produce
- For whom to produce
These three questions must be answered by firms, individuals and governments.
Primary, secondary and tertiary sectors of an economy:
Primary Secondary Tertiary
First stage of production Second stage of production known as the service sector
process process
Extraction of raw materials Makes use of the raw a business that provides
materials from the primary services to other businesses
sector or individuals
Provides raw materials from large tertiary sector usually
which goods and services are means a country is
mad in the secondary sector developed.
Eg. fishing, farming, mining Eg. and manufacturing and Examples: banking,
building education, insurance
Private sector:
- Part of the economy that owned and controlled by private individuals and firms who aim
to make a profit
Public sector:
- Part of the economy owned and controlled by the government.
- Businesses in the public sector are called public corporations, their aim is to provide
affordable services to the public.
Economic systems:
- Each country’s economic system answers the three main questions
- The system decides what goods and services to produce for who and how
- (what, who and how)
