Units 1 and 2
Economics is the study of how our scarce productive resources are used to satisfy human
wants.
Resources available for production of goods and services are limited - wants for goods and
services are unlimited.
Basic Economic Problem: Scarcity, choice and opportunity cost
Wants Human desires for goods and services, unlimited
Needs Necessities, essential for survival
Demand Only a demand for goods and services if those who want to
purchase them have the ability to do so
Opportunity Cost Opportunity cost of a choice is the value of the best alternative
that could have been chosen but was not chosen. Everything
involves a trade-off ‘ something is given up in favour of something
else’. Measures the cost of the alternative.
Social Science Actual experiences, value judgments or opinions (economics)
Natural Science Can be studied in a lab, very precise
Positive Statement Can be proved or disproved by comparing with facts (Interest
rates rose by 10% in 2006)
Normative Statement Involves opinions or value judgments (this government is badly
run)
Level Level of prices
Rates Rate of increases in prices (%)
Three Central Economic Questions:
What should be produced? – Market mechanism (only produce goods and services that
consumers are willing to spend their income on and which can be supplied profitably)
How should it be produced? – Factors of production
For whom should it be produced? – Distribution of income (the more valuable your contribution
and that of the resources you own, the higher your income)
Goods
Consumer Goods used or consumed by individuals or households to satisfy wants
Economics is the study of how our scarce productive resources are used to satisfy human
wants.
Resources available for production of goods and services are limited - wants for goods and
services are unlimited.
Basic Economic Problem: Scarcity, choice and opportunity cost
Wants Human desires for goods and services, unlimited
Needs Necessities, essential for survival
Demand Only a demand for goods and services if those who want to
purchase them have the ability to do so
Opportunity Cost Opportunity cost of a choice is the value of the best alternative
that could have been chosen but was not chosen. Everything
involves a trade-off ‘ something is given up in favour of something
else’. Measures the cost of the alternative.
Social Science Actual experiences, value judgments or opinions (economics)
Natural Science Can be studied in a lab, very precise
Positive Statement Can be proved or disproved by comparing with facts (Interest
rates rose by 10% in 2006)
Normative Statement Involves opinions or value judgments (this government is badly
run)
Level Level of prices
Rates Rate of increases in prices (%)
Three Central Economic Questions:
What should be produced? – Market mechanism (only produce goods and services that
consumers are willing to spend their income on and which can be supplied profitably)
How should it be produced? – Factors of production
For whom should it be produced? – Distribution of income (the more valuable your contribution
and that of the resources you own, the higher your income)
Goods
Consumer Goods used or consumed by individuals or households to satisfy wants
