basic economics

• The basic economic problem

  1. There are infinite wants but finite resources
• Scarcity


  not everyone's needs can be met
• Opportunity cost

  1. the cost of the next best alternative
  2. this is forgone when a choice is made
• What are the 3 economic agents

  1. governments
  2. businesses (firms)
  3. consumers
  4. workers
• Free goods

  1. no opportunity costs associated with their use
  2. not scarce
• examples of free goods

  1. sleep
  2. air
  3. light
• economic goods have what?

  opportunity cost
• Public goods

  1. non-excludable
  2. non-rivalrous
• what is a non-excludable good


  You cannot stop someone from using this good
• what is a non-rivalrous good


  the use of this good does not detract from someone else's use
• examples of public goods

  1. street lights
  2. culture
• What are the 4 factors of production

  1. Capital
  2. Enterprise
  3. Labour
  4. Land
• What is Capital (factor of production + examples)

  machinery/equipment

  1. tractor
  2. sewing machine
• What is Enterprise (factor of production + examples)

  Act of bringing resources together

  1. elon musk
  2. jeff bezos
• What is Labour (factor of production +examples)

  human capital/ resources

  1. teacher
  2. hairdresser
• What is Land (factor of production + examples)

  natural resources

  1. coal
  2. iron
  3. slate
• What are economic models used for

  1. explain how an economy works
  2. predict future events

  Evaluations:

  1. only looks at two variables (unrealistic)
  2. have to make assumptions
• Perfect information

  assumption that all individuals have the same (full and perfect) information
• Ceteris Paribus


  all other things remaining equal
• Positive statements

  1. can be proven or disproven scientifically with data
  2. look for numbers
• What are the two types of statements

  1. positive statement
  2. normative statement
• Normative statements

  1. value judgements that cannot be tested, disproven or proven
  2. Opinions (don't say that in exams)
  3. Often contain the words should, I think and fun
• Key Assumptions (3 economic agents)

  1. Government
  2. Businesses
  3. Consumers
• Assumptions on the government

  seek to maximise everyone's welfare
• Firms

  seek to maximise profits
• Consumers

  seek to maximise utility (satisfaction)
• What are economic models used for

  1. explain how economy works
  2. predict future events

  EVALUATIONS:

  
  

  1. only looks at 2 variables (unrealistic)
  2. have to make assumptions
• substitute goods


  two goods that can be used for the same purpose by consumers

  eg beef and lamb
• complementary goods


  goods consumed or used together

  eg cars, car insurance