basic concepts

• What is the definition of economics?

  economics is study of how individuals,businesses,governmnets and other organisations choose to use scarce resources to satisfy their numerous/unlimited wants and needs in a efficent and equitable manner
• the four elements of economics is scarcity,choice,efficiency and equity
• There is no endless supply of things that nature provides or human made things.Resources are finite.
• Resources all have more than use.What does that mean?


  This means that everytime we use a resource for one purpose , we cannot use it for another purpose.
• What determines the purposes for which our resources are used?

  The combined decisions of millions of individuals,consumers,enterprises and the public sector
• scarcity is the core economic problem
• What is scarcity?

  Resources that are difficult to find or are in short supply
• Why does scarcity exist

  It exists due to the unlimited needs and wants of humans and the limited resources
• Scarcity forces us to choose between alternatives and make choices
• What is the result of scarcity

  Choice
• People have to make choices because their wants outweigh the resources that are available
• Their wants are unlimited because it is human nature to want more,better,newer and nicer things.
• In subsistence economies,means are in the form of what nature provides
• in modern economies,the means of people mostly take the form of money income that is earned by the services of their labour,entreprenurship,capital and land
• The means of businesses and governments are in form of money income. Business dervive their income from the sales of goods and services. Governments derive their incomes from taxes.
• Wants are needs that are backed by a person's ability and willingness to sacrifice resources to satisfly them
• How can we use our means(resources) intelligently

  By ensuring that they are used for purposes that will result in maximum satisfaction(utility)
• What does choice mean

  That one alternative is selected over another
• What is effiency concerned with


  how well resources such as time,money,labour and materials are used to produce an end result(output)
• If we are successful and manage to use the available resources efficiently, it means that one person's sacrifice can be increased only if someone elses satisfaction is lowered
• another name for government

  public sector

  state
• What is efficiency

  when all resources are allocated in a way that waste is minimized
• What does equity mean

  Equal distributions of resources

  how the income and opportunity is evenly distributed between people
• being equitable means being fair and just
• how can we think not only of our wants and needs but have concern for others to

  if we earn an income we should consider those who do not or who earn an inadequate income

  businesses should not exploit clients and workers for the sake of ever-increasing profits

  ensure that natural resources are not used up to the extent that there is nothing left for future generations
• governments assist us with regard to our problems with equity
• How does the government ensure that the benefits of society's resources are distributed fairly among society's members

  taxes the wealthy and provides public servies

  poor does not contribute to these but enjoy the benefits often free of charge

  in SA the government additionally pays a number of social allowances to the poor such as pensions,child support grants or care dependancy grants
• Income inequality refers to differences in income levels across different groups within a population
• We face a trade off between effiecieny and equity.Government may introduce policies aimed at achieving a more equal distribution of income by levying taxes
• Whats the problem : Taxes are levied on financially successful individuals and businesses to provide an income with which government can meet the cost of the services provided to the poor.

  Has the benefit of achieving greater equity but reduces efficiency.When the government taxes people at high rates it reduces the reward for working hard and therefore people work less and produce less goods and servies
• Economists investigate. In their investigations they often follow either a microeconomic or a macroeconomic approach.
• microeconomics studies the individual parts of the economy and the individual decision making process , attempts to understand the individual decision making processes of firms and households, eg the price of a single product or the interaction between buyers and sellers
• Microeconomics studies the behaviour of individual decision-making units in a market situation. Such a situation is characterised by the presence of demand, supply and prices. Because prices are often dominant in determining the quantities demanded and supplied, microeconomics is also known as price theory.
• Adam smith was the founder of microeconomics , his most famous work is an inquiry into the nature and causes of the wealth of nations. It was published in scotland in 1776
• ceteris paribus is a standard expression used in micro economics
• Why is microeconomics useful

  allows us to zoom in on component and analyse the relationship between the variables involved,find the reason it exists and identify what weakens and strengthens the relationship