economics chapter 1

• economics is a social science because it studies the economic behaviour of both individuals and groups of people and the economic relationships between individuals and groups
• • individual behaviour can be represented through the demand theory
  • relationships can be shown through how consumers interact with firms or producers
• firms supply and sell goods which consumers buy
• a market is what economists call a place where goods are bought and sold
• a positive statement does not include a value judgement and can be tested against the facts or evidence
• a normative statement includes a value judgement and cannot be refuted by just looking at data or evidence
• value judgement - a view about what is right or wrong, good or bad in a moral sense
• value judgements often include words such as

  • should
  • ought
• a need is something that is necessary for human survival (food, clothing, shelter, warmth)
• a want is something that is desirable but not necessary for human survival (e.g fashionable clothing)
• economic welfare - the economic well being of an individual, a group within society or an economy
• satisfying people needs and wants improves economic welfare
• welfare - human happiness - anything that makes a person happy improves their economic welfare
• production - a process or set of processes that converts inputs into outputs of goods
• capital good - a good which is used in the production of other goods or services (aka a producer good)
• consumer good - a good which is consumed by individuals or households to satisfy their needs or wants
• factors of production - inputs into the production process such as

  • capital
  • enterprise
  • land
  • labour
• capital - the human made factor of production

  e.g machines, tools, lorries and buildings
• enterprise - making decisions and taking risks
• entrepreneur - the person or group of people who organise the other economic resources to allow goods and services to be produced
• land - natural resources that are available on the earth

  e.g land and the sea
• labour - the human resource, contribution made by people to the production of goods and services
• entrepreneurs address the issue what to produce, how to produce and for whom to produce
• profit is the entrepreneur's financial reward results from successful decision making
• entrepreneurial profit - profit that remains after deducting the costs of employing the other factors of production (CELL) from the sales revenue generated by selling goods and services.
• scarce resources:

  • physical - soil, water, forests, fisheries and minerals
  • gases - hydrogen and oxygen
  • abstract - solar energy, wind energy, good air, clean water, maintaining the beauty of the landscape
• environmental resources are part of the factor of production land
• finite (non renewable) resources - a scare resource and cannot be replenished over time
• renewable resource - reproducible resource
• economic problem exists because both goods and the resources needed to produce the goods are scarce
• fundamental economic problem - how best to make decisions about the allocation of scarce resources among competing uses in order to improve and maximise human happiness and welfare
• scarcity - limited resources and unlimited wants
• opportunity cost - the next best alternative foregone when a choice is made
• economic activity - the production, consumption, exchange and distribution of goods and services
• economic resources (F.O.P)- the inputs into the production of process that are needed to produce the goods and services that satisfy people's wants. (e.g C.E.L.L)