Topic 1 + 2

• Economics is the study of how people allocate their limited resources to their unlimited wants.
• The economics problem is that there aren't enough resources to fulfill our unlimited wants.
• Scarcity: The lack of a good or service that is in demand and not available.
• Choice: people have to choose which wants they will satisfy
• Microeconomics is the economic problem from an individual point of view. (Consumers and producers) It studies how markets and prices work to allocate resources between all competing industries in the economy.
• Macroeconomics is the economic problem from society's point of view. It is concerned with the performance of the whole economy, including taxation and interest rates.
• Opportunity cost is the value of the best alternative you give up.
• Principle of decreasing marginal benefit: The benefit of consuming a good or service decreases as the number of units consumed increases. (benefits increase at a declining rate)
• Marginal analysis: compares the additional benefits from an activity and the extra cost incurred by the same activity. It serves as a decision-making tool in projecting the maximum potential profits.
• Net benefits = total benefits - total costs
• Economic model is a representation of a certain behaviour/pattern in our economy
• Ceteris parabis: all other factors are constant/unchanged
• Economics as a social science focuses on the production, distribution, and consumption of goods and services.
• Economic models are used so we can predict patterns in the economy. It also shows us how we can optimise our resources.
• PPF: Production Possibility Frontier
• PPF: a curve on a graph that illustrates the possible quantities that can be produced of two products if both depend upon the same finite resource for manufacture
• The PPF line is bowed outwards because opportunity cost is increasing
• When the economy grows and all other things remain constant, we can produce more, so this will cause a shift in the production possibilities curve outwards or to the right.
• Economic growth is caused by increases in capital goods, labour force, technology and human capital.
• • What to produce?
  • How to produce?
  • For whom to produce?
• Market economy: an economic system in which production and prices are determined by unrestricted competition between privately owned businesses.
• Command economy: A system of economic organization in which the government controls the allocation of resources and the production process.
• Demand refers to the actual buying intentions of the consumer.
• The quantity demanded of a good or service is the quantity that consumers are willing and able to purchase, at a particular price and quantity.
• Law of demand: as price increases, quantity demanded decreases
• There is a negative relationship between price and quantity demanded. There are two reasons for this: income effect and substitution effect.
• Income effect: When the price of a good rises, consumers aren't willing to buy as much of the good because their real income or purchasing power has decreased.
• Substitution effect: When the price of one good rises, other goods become more attractive to buyers because they are relatively cheaper.
• A schedule is a table showing the quantity demanded of a good consumers are willing to purchase at that price. It is called a market demand schedule as it is a summation of all the individual consumers in the market.
• A demand curve is negatively sloped reflecting law of demand.
• The individual demand curve represents the demand each consumer has for a particular product, and the market demand curve shows the cumulative relationship between in general and the product.
• A change in price cannot shift the demand curve. Change in price leads to a movement along the demand curve and a change in quantity demanded.
• Disposable income: Consumers buy more of a good when their income increases.
• Normal goods: demand increases as income increases
• Inferior goods: demand decreases as income increases.
• Non-price factors affecting demand: level of disposable income, substitutes and complements, tastes and preferences, expectations of consumers, demographic factors.
• Substitutes: goods and services that satisfy the same wants
• Complements: goods consumed with other goods.
• Tastes and preferences: The advertising industry plays an important role in shaping consumer tastes and preferences and spending habits.
• Expectations of consumers: Consumers make decisions based on their expectations about future prices and incomes.