The basic concepts
Economics is the study of how individuals, businesses, governments, and other organisations in our
society choose to use the scarce resources to satisfy their needs and wants in a way that is efficient
and equitable.
The basic economic question Factors of production + remuneration
What to produce? Capital (money, equipment) – interest
How to produce? Entrepreneurs (the business owner) – profit
For whom to produce? Land (natural resources) – rent
Labour (workers) – salaries and wages
The “process” of economics:
Production – the process of changing raw materials into goods and services.
Distribution – the sharing of goods and services among different people
Consumption – the buying and using of goods and services.
* goods are the items that we can use or hold
* services are actions to help us that are paid for
The elements of economics:
Scarcity – the demand for a good or service is greater than the availability of the good or service.
Competition – scarcity leads to competition.
Demand and supply – people produce and consume products to satisfy themselves.
Inflation – the rate of increase in prices over a given period.
Trade deficit - occurs when a country's imports exceed its exports during a given time.
The main branches of economics
Microeconomics Macroeconomics
focuses on a distinct staring point. focuses on the end results of all economic
deals with individual decisions regarding activity.
specific goods, services, and business deals with large decisions that impact the
e.g. – supply and demand total economy.
e.g. – business cycles and inflation
,The approaches of economics
Economists observe behaviour, study trends, and gather factual information to develop economic
principles.
theoretical approach (deduction) – assumptions are made, and conclusions are drawn.
empirical approach (induction) – facts and data are gathered through observations so trends can
be found.
combination approach – deduction and induction are combined.
The methods of economics
1. Positive and normative statements
Positive statements Normative statements
objective statement about what is and can subjective statement that describes how
easily be confirmed by measuring aspects of something should be – an outcome of
reality behaviour and is difficult to measure
Difficulties faced by the social sciences.
Social sciences are those academic disciplines that examine how people interact and how society
develops – Economics, History and Geography
Social sciences are difficult to study as they involve human behaviour which are unpredictable
because they are affected by many external factors such as the environment and society.
Economics within the commercial field
Accounting uses economic decisions to decide on the best way to use the scarce financial
resources of a business to produce the most profit.
Financial mathematics is used to solve complex economic problems.
Sectors of an economy
1. Primary sector – raw materials are extracted from the earth – mining or fishing.
2. Secondary sector – raw materials are manufactured into products people can use – textiles.
3. Tertiary sector – services are provided to households – banking and lawyers.
The importance of the tertiary sector
- It is the sector in which most people in developed countries are employed.
- It is where most of the money in the economy is made.
- Allows a country to become more globalized.
, The basic economic problem
…is scarcity – how limited resources are distributed in the face of unlimited needs and wants.
* needs are the basic goods in life that we need to survive – food and water
* wants are the luxury goods that bring pleasure – television
The scarcity of goods has two main effects on people:
People must make an effort to purchase goods.
Since people can’t purchase all the goods, they desire they need to make choices.
Absolute scarcity Relative scarcity
exist where there is a limited amount of a good exist where the demand for a good is greater
and there is no substitute for it. than the supply of a good
nature provides the resource in finite a particular resource is in short in an area.
quantities. e.g., SA has relatively more coal than Zim
e.g., time
Economic goods are scarce goods that are available at a commercial price – car.
Free goods are not scarce and have no commercial value – oxygen.
The opportunity cost is the value of the next best alternative that has been given up.
The basic economic process
A. Production
Is the making of goods and services that consumers use to satisfy their unlimited needs and wants
Purpose of production is to provide goods and services to satisfy the needs and wants of society.
If production increases, all other things being equal – ceteris paribus –
I production I employment I income I standard of living
Indirect production Mass production
The process of producing products in an The manufacturing of large quantities of
indirect manner by specialization for exchange products, often using automation technology
The producer is not attempting to satisfy his Mass production facilitates the efficient
own want directly except through a very limited production of many similar products
extent
Example – Personal protection equipment (PPE) Example – the automobile industry
Economics is the study of how individuals, businesses, governments, and other organisations in our
society choose to use the scarce resources to satisfy their needs and wants in a way that is efficient
and equitable.
The basic economic question Factors of production + remuneration
What to produce? Capital (money, equipment) – interest
How to produce? Entrepreneurs (the business owner) – profit
For whom to produce? Land (natural resources) – rent
Labour (workers) – salaries and wages
The “process” of economics:
Production – the process of changing raw materials into goods and services.
Distribution – the sharing of goods and services among different people
Consumption – the buying and using of goods and services.
* goods are the items that we can use or hold
* services are actions to help us that are paid for
The elements of economics:
Scarcity – the demand for a good or service is greater than the availability of the good or service.
Competition – scarcity leads to competition.
Demand and supply – people produce and consume products to satisfy themselves.
Inflation – the rate of increase in prices over a given period.
Trade deficit - occurs when a country's imports exceed its exports during a given time.
The main branches of economics
Microeconomics Macroeconomics
focuses on a distinct staring point. focuses on the end results of all economic
deals with individual decisions regarding activity.
specific goods, services, and business deals with large decisions that impact the
e.g. – supply and demand total economy.
e.g. – business cycles and inflation
,The approaches of economics
Economists observe behaviour, study trends, and gather factual information to develop economic
principles.
theoretical approach (deduction) – assumptions are made, and conclusions are drawn.
empirical approach (induction) – facts and data are gathered through observations so trends can
be found.
combination approach – deduction and induction are combined.
The methods of economics
1. Positive and normative statements
Positive statements Normative statements
objective statement about what is and can subjective statement that describes how
easily be confirmed by measuring aspects of something should be – an outcome of
reality behaviour and is difficult to measure
Difficulties faced by the social sciences.
Social sciences are those academic disciplines that examine how people interact and how society
develops – Economics, History and Geography
Social sciences are difficult to study as they involve human behaviour which are unpredictable
because they are affected by many external factors such as the environment and society.
Economics within the commercial field
Accounting uses economic decisions to decide on the best way to use the scarce financial
resources of a business to produce the most profit.
Financial mathematics is used to solve complex economic problems.
Sectors of an economy
1. Primary sector – raw materials are extracted from the earth – mining or fishing.
2. Secondary sector – raw materials are manufactured into products people can use – textiles.
3. Tertiary sector – services are provided to households – banking and lawyers.
The importance of the tertiary sector
- It is the sector in which most people in developed countries are employed.
- It is where most of the money in the economy is made.
- Allows a country to become more globalized.
, The basic economic problem
…is scarcity – how limited resources are distributed in the face of unlimited needs and wants.
* needs are the basic goods in life that we need to survive – food and water
* wants are the luxury goods that bring pleasure – television
The scarcity of goods has two main effects on people:
People must make an effort to purchase goods.
Since people can’t purchase all the goods, they desire they need to make choices.
Absolute scarcity Relative scarcity
exist where there is a limited amount of a good exist where the demand for a good is greater
and there is no substitute for it. than the supply of a good
nature provides the resource in finite a particular resource is in short in an area.
quantities. e.g., SA has relatively more coal than Zim
e.g., time
Economic goods are scarce goods that are available at a commercial price – car.
Free goods are not scarce and have no commercial value – oxygen.
The opportunity cost is the value of the next best alternative that has been given up.
The basic economic process
A. Production
Is the making of goods and services that consumers use to satisfy their unlimited needs and wants
Purpose of production is to provide goods and services to satisfy the needs and wants of society.
If production increases, all other things being equal – ceteris paribus –
I production I employment I income I standard of living
Indirect production Mass production
The process of producing products in an The manufacturing of large quantities of
indirect manner by specialization for exchange products, often using automation technology
The producer is not attempting to satisfy his Mass production facilitates the efficient
own want directly except through a very limited production of many similar products
extent
Example – Personal protection equipment (PPE) Example – the automobile industry
