Nature of economics

• Economics as a social science

  Economics is a social science , The scientific study of societies and social interaction
• Economic models are difficult to test because 


  There are many different factors changing
• Ceteris Paribus

  All other factors remain Equal/unchanged
• Positive statements 


  Factual and can be tested
• Normative statement

  Opinion based
• Roles of positive & normative statements in policy making

  Economists use positive statements to analyze and understand economic phenomena objectively. Normative statements are important in shaping economic policies but are influenced by personal values and beliefs.
• The basic economic problem

  Unlimited wants , limited resources
• Opportunity cost

  Cost of the next best alternative
• Factors of production

  C - Capital

  E - enterprise

  L - Land

  L - Labour
• Renewable & non-renewable resources

  Renewable-resource is replenished faster than its being used.

  Non-renewable - resource is used faster than it can be replenished
• PPFs Posible Possiblity Frotier

  The PPF is a fundamental concept in economics used to illustrate scarcity, trade-offs, and opportunity costs.
• PPFs Posible Possiblity Frotier

  PPF curve is a graphical

  representation that illustrates the maximum output of two goods or services that an economy can produce given its available resources and technology, assuming full utilisation of resources and a fixed level of technology.
• When will ppl shift out

  (PPF) shifts outward when

  there is an increase in an economy's potential to produce goods and services.
• What dose a PPF shit (outwards) represent

  This outward shift represents economic growth, which allows the economy to produce more of both goods or to improve its production capabilities.
• Specialisation of labour

  Specialization refers to the concentration of individuals, firms, or nations on producing a limited range of goods or services
• Advantage and disadvantage of specialisation

  
  

  Advantages

  • Increased Productivity: Specialization allows workers to become more skilled in specific tasks, leading to higher efficiency.
  • Economies of Scale: Larger quantities of identical goods can be produced more efficiently.
  • Lower Costs: Reduced training time and waste contribute to cost savings.

  Disadvantages

  
  

  • Monotony: Workers may find repetitive tasks monotonous, leading to job dissatisfaction.
  • Dependency: An economy heavily dependent on a single industry or export can be vulnerable to economic shocks.
• Division of labour

  Division of labour is a form of specialisation where tasks are divided among workers
• PED Price elasticity of demand 


  PED = %𝚫 Quantity Demanded/%�� Price

  
  

  PED>1 demand is elastic, indicating that consumers are relatively responsive to price changes

  
  

  PED<1 demand is inelastic, suggesting that consumers are less responsive to price changes

  
  

  PED=1 demand is unitary elastic, meaning that percentage changes in price and quantity demanded are equal.
• PED

  the price elasticity of demand is a key concept that helps measure how responsive the quantity demanded of a good or service is to changes in its price
• Shifts in Demand

  Reasons

  1. Advertising, fashion, trends
  2. Population & Age Structure
  3. Seasons
  4. Income : Normal & Inferior Goods
  5. Price of other goods : complements and substitutes