Nature of Economics

• Social Science

  The study of society and relationships between people
• Posotive statment

  A statment that can be verified as a fact and tested to be true or false
• Normative statment

  A statment that is subjective and based on a persons views
• Cetirus Paribus

  The investigation of how one variable affectes another whilst all other factors are held constant
• Ratinal decision making

  The process of consumers selecting a decision based on evaluation of different factors
• Utility maximising

  Consumers maximising the amount of satisfaction gained after consumption of a good or service
• Profit maximisng

  Bussinesses maximisng the amount of profit they get from selling goods and services
• Welfare maximising

  The government utilisng available recources to improve societal utility
• Scarcity

  When the demand for goods/recources are greater than the availabilty
• Wants and Needs

  Wants: Desirable things you can live without

  Needs: Essential items for survival
• Trade offs

  Sacrificing one thing for something else
• Oppurtunity cost


  The cost of the next best alternative lost after making a decision
• Factors of Production

  $Q^2 CELL$

  Quality and Quantity of

  Captial

  Enterprise

  Land

  Labour
• PPF

  Stands for Production possibility forntier and is The maximum production output of two goods or services when factor inputs are used efficiently
• The basic economic problem

  Due to a scarce amount of recources Producers must decide

  What to produce

  How to produce

  For whom to produce for
• Productivity

  Any point oustide of the PPF is impossible

  Any point inside the PPF is productively inefficient

  Any point on the PPF line is productively efficient
• Types of PPFs

  Linear: Constant oppurtunity cost

  Cuvered: Increasing oppurtunity cost
• Why do curved PPFs have increasing oppurtunity cost

  More recources have to be reallocated and taken away from one good to another
• Consumer good

  Goods that we consume
• Captial goods

  Goods that are used to produce consumer goods
• Specialisation

  The concentration of workers or bussinesses producing a narrow range of a good/service
• Division of labour

  Dividing up tasks into smaller units of work so specialisation can take place
• The result of Specialisation

  Results in reduced costs as specialisation increases efficiency therefore leading to more output per unit of labour
• Advantages and Disadvantages of the division of labour

  Advantages:

  Allows workers to become specialiased in a task

  reduces costs for labour

  Increased productivity

  
  

  Disadvantages:

  Boredem may lead to decreased productivity (demotivation)

  Low wages for workers

  Poor working conditions
• Why the divison of labour leads to unemployment

  Workers are only specialised in one skill and these skills may not be transferable to other industries therefore leading to unemployment
• Internatinal specialisation

  Specialisation also occurs internatinally as if a country specialises in one area, they trade and export their goods and services in order to import other recources from different countries
• Herd behaviour

  Being influenced to make a decision based on other people's behaviours
• Habitual behaviour

  When habit causes consumer to overlook better alternatives and lose out on extra utilty that could have been gained