MODULE 1

• The resources are scarce in the sense that there are not enough of them to produce everything  we need and desire. Even when using all resources as efficiently and completely as possible, and  using all modern technology to its fullest extent, there is some limit to the amount we can  currently produce.
• Scarcity - forces us to choose among competing uses for society’s resources.  What to produce and how to distribute this output to society’s citizens are the most basic  economic choices to be made.
• Production possibilities - shows the maximum amounts of two different goods that can possibly be  produced during any particular time period using society’s scarce resources.
•  In examining  production possibilities, we must make these simplifying assumptions about our economy: 

  1. All available resources are used fully. 

  2. All available resources are used efficiently. 

  3. The quantity and quality of available resources are not changing during our period of  analysis. 

  4. Technology is not changing during our period of analysis. 

  5. We can produce only two goods with our available resources and technology. 
• The production possibilities curve best explains the following economic concepts: 

  Opportunity Cost - is the best alternative that is forgone to produce or consume something else. Unemployment - some resources may go unused, rarely produce to full potential 

  Economic Growth - may occur if the quality or quantity of society’s resources increases, or if new  technologies are developed so that we can produce more output with our available resources. 
• ECONOMICS AND DISTRIBUTION 

  The reason there is hunger in a world of plenty is not a problem of production but of distribution.  Poor people and poor governments lack the income to purchase the food that is produced. 

  In a market-based economy, like ours, the choices of distribution as well as production are based  primarily on prices. And prices are determined by demand and supply. 
• Demand - The people will be willing and able to buy more of a good or service at low prices than  at high prices is a fundamental economic principle, the law of demand, which is usually price and  quantity demanded are negatively related, all other things are equal.
•  Demand Schedule - a tabular format that shows the alternative prices and the quantities  that people are willing and able to purchase at a given price. 
• Demand Curve - indicates all possible combinations of alternative prices and quantity  demanded assuming that all factors except price that could affect quantity demanded  are held constant.
• Law of Demand - states when price goes up, quantity demanded goes down, and vice  versa.
• Supply - price and quantity supplied are positively related, all other things are equal.
•  Supply Schedule - a tabular format that shows alternative prices and the quantity to be  supplied 
• Supply Curve - indicates all possible combinations of quantity supplied and alternative  prices with the assumption that all other factors affecting supply are held constant.  
• Law of Supply - states if price goes up, so does quantity supplied; if price goes down, so  does quantity supplied. 
• Factors That Cause Real-World Demand Curves to Shift 

  1. Changes in the number of consumers who wish to purchase the product. 

  2. Changes in the tastes of the consumers in the market

  3. Changes in the prices of complements and substitutes. 

  4. Changes in consumers’ incomes 

  5. Changes in consumers’ expectations about the product’s future price or availability
• Factors That Cause Real-World Supply Curves to Shift 

  1. Changes in the number of sellers in the market. 

  2. Changes in the prices of resources used to produce the product. 

  3. Changes in the technology used to produce the product. 

  4. Changes in the prices of other products that could be produced with the same  resources. 

  5. Changes in government taxes or subsidies. 

  6. Changes in sellers’ expectations about the product’s future price. 
• MARKET FAILURES AND A GLIMPSE OF THE FUTURE 

  Most economists - agree that the marketplace performs many useful functions. 

  In addition to  efficiency, a market-based economy - provides economic incentives and tends to be highly  productive. The combination of competition and proper price signals encourages efficient  production of the products desired by consumers in the least costly manners. 
• Public Goods and Services - have unique characteristics that make it unlikely that the market will  provide enough of them. As a result, the government often provides them. Public goods and  services include national defense, public libraries, highway construction, crime prevention,  public education, and others.
• Spillovers - occur when some cost (or benefit) related to production or consumption “spills over”  onto people not involved in the production or consumption of the good. Pollution is of our  environment is the most obvious example. 
• Inequity - the inability of low-income people to meet their basic needs in unfair. Housing , health  care, and social security also raise issues of equity.
• Market Power - Competition protects us from unreasonable prices. Without competition, single  supplier and/or the price-fixing group possess market power, which is the inability of a supplier  to influence the market price of its product. Examples of firms charged with abusing their market  power include Microsoft and Apple. Because market power arises when a small number of  suppliers influence the market price of their product, it is reasonable to conclude that a larger  number of suppliers, whether these are domestic or foreign producers, will serve to reduce  market power. 
• Factors determining if a nation operates on the production possibilities curve (full employment) or below it (unemployed resources) are volatile
• Variations in employment levels can range from very low to high due to these factors
• Factors affecting the average price level in the economy are closely related to employment levels
• Rising average price levels indicate inflation in the economy
• Price levels and employment tend to fluctuate, leading many to consider the market economy as inherently unstable
• Government and central banking system interventions aim to ensure greater stability of prices and employment
• Development Economics is distinct from other aspects of economics in that it focuses on the problems and challenges of developing countries
• In Asia, there are poor countries as well as some that have recently joined the group of industrialized countries like Singapore, Hong Kong, Korea, and Taiwan
• Development economists utilize analytical tools and methods from various branches of economics, including growth theory, macroeconomics, microeconomics, labor, industrial organization, international trade, and fiscal and monetary policies
• Economic development was traditionally seen as synonymous with economic growth, either total economic growth or economic growth in per-capita terms
• Economic growth and economic development are not necessarily the same
• Economic development is a broader and more encompassing view than economic growth, relating to levels of social and humanitarian achievement, income distribution, and per-capita income
• A measure of the amount of goods and services produced in an economy in a year can provide insight into the standard of living in that economy
• When the value of goods and services produced in an economy increases over time, it indicates economic growth
• Gross domestic product (the total value of  production in an economy) or gross national product (GNP-which is GDP plus net factor income  from abroad) is used as a measure of the nation’s income or production. The size of the total  population can be used to deflate it to per-capita terms. An improvement in the living standards of the population is a natural consequence of economic growth over a period of time. Thus by  looking at GDP or GNP growth rates, we get some idea about living standards and how they  change over time. 
• The Human Development Index (HDI) consists of three components:

  • Per-capita income
  • Life expectancy at birth
  • Level of educational attainment (combining adult literacy and educational enrolment rates)
• Per-capita income is adjusted to reflect the diminishing marginal use of money to obtain the HDI
• Green GNP is the informal name for national income measures adjusted to consider:

  • Depletion of natural resources (renewable and non-renewable)
  • Environmental degradation
  • Adjustments include the cost of exploiting natural resources and valuing the social cost of pollution emissions
• Healthy Life Expectancy:

  • A measure used by the World Health Organization (WHO)
  • Summarizes the expected number of years to be lived in "full health"
  • Years of ill-health are weighted according to severity and subtracted from the overall life expectancy rate to give the equivalent years of healthy life