1. Intro to Economics

• Positive economics


  • Testing and developing economic theory; subjects that are testable: "what is" and "what should be"
• To answer the economic problem, one must answer the 4 key economic questions: How much, for who, what, how to produce
• Various economic theories offer different ways of fulfilling the most wants
• Normative economics


  • Reflect opinions rather than facts; involves a value judgement and cannot be tested objectively
• Microeconomics


  Concerned with the actions of individuals/consumers and businesses
• Basic Economic Problem


  How to satisfy the unlimited wants of consumers with relatively scarce resources, creating scarcity and the need for choices and opportunity cost
• Ceteris Paribus


  All else being equal; used to study cause and effect by controlling variables
• Macroeconomics


  Focused on the actions that governments and countries take to influence broader economies at the national level
• Capital


  All non-natural (manufactured) resources used in the creation and production of other products, including machinery, equipment, and infrastructure
• Economic Resources / 4 Factors of Production


  • Land
  • Labour
  • Capital
  • Enterprise (Entrepreneurship)
• Land


  Natural resources available for production, including renewable and non-renewable resources
• The basic economic problem is how to satisfy the unlimited wants of consumers with relatively scarce resources. This creates scarcity. Because resources such as the factors of production, are scarce, people and societies must make choices about how to best allocate them. And because a choice has to be made there is opportunity cost, as we can never satisfy every want with limited resources.
• Economic models

  • Simplified representation of economic reality showing relationships between certain economic variables
  • Determine cause and effect
  • Ability to predict events accurately
  • Not 100% reflection on society, there are many more variables in real life than are accounted for in models
• Labour:

  • Physical and mental effort of people used in production
  • skilled (any qualification) (to make their time more valuable)
  • unskilled (working at macca's)
  • Includes the human effort, skills, and abilities that are employed in the production of goods and services.
• Enterprise (Entrepreneurship):

  • Refers to the management, organisation and planning of the other three factors of production
  • Brings other factors of production together to create new products, processes, and business ventures.
• Free goods

  • Does not incur any opportunity cost in its production or when consumed
  • Not relatively scarce (no limited in supply)
  • Has no price
  • E.g. Sunlight
• Economic Goods 

  • Has an opportunity cost (goods that use resources which could have been put to use producing something else)
  • Uses scarce resources
  • Will have a price
  • e.g. Solar panels
• • Land: natural resources available for production. E.g. Physical places like factories & farms
• Labour: the mental or physical efforts of people in production. E.g. People like factory works & transport drivers
• • Capital: manufactured resources used in production of final goods. E.g. Machinery like sewing machines & tractors
• Payments to factors of Production:

  • Land ==> Rent
  • Labour ==> Wages
  • Capital ==> Interest
  • Enterprise ==> Profit
• Goods:

  • Tangible products that people want and need, like food, clothing, electronics, and more. There are 2 types of goods.
• 1. Consumer goods

  • Products sold to general public
• • Consumer durable goods:
  • Products that last a long time and can be used repeatedly
  • Last more than three years, sofa, car, washing machine, reused frequently
• • Consumer non-durable goods:
  • Products that need to be consumed very shortly after purchase
  • Need to be consumed soon after purchase
• 1. Capital goods or Producer goods

  • Products purchased by other businesses to produce other goods and services
• Services

  • Intangible products provided by people or businesses to fulfil specific needs or wants
• Opportunity cost is the real cost of the next best alternative that is forgone when a decision is made. It represents the benefits or opportunities one gives up by choosing one option over another.

  • 'next best alternative' implies a scale of preference
• choice refers to the decision-making process where individuals, businesses, and societies must select from various alternatives due to limited resources.

  • Choices must be made to allocate these resources efficiently to satisfy wants and needs. Make choices that benefit them
  • But, therefore, must make sacrifices
• Scarcity         is the fact that there is a limited amount of resources to satisfy unlimited wants
• A scarce resource refers to a limited or finite resource that is not abundantly available in relation to the demand for it.
• Needs: The basic necessities that a person must have in order to survive
• Wants: The desires that people have. Unlimited & of varying importance (everyone has different wants)
• Price is a reflection of market conditions, demand, and supply.

  • In a free market, prices are determined by the interaction of supply and demand. Prices can fluctuate based on changes in consumer preferences, production costs, availability of resources, and market conditions.
• Price-taking firm: cannot influence the price of the product it sells
• Price-setting firm: sets the price of the product it sells
• Opportunity costs of A is the value of B and C that is foregone when A is chosen
• Cost/Value

  • Refers to the expenses incurred by producers in the process of creating goods or services. This includes factors like raw materials, labour, overhead, and other inputs.
• Market economy

  
  

  Voluntary exchange and the laws of supply and demand provide the sole basis for the economic system, with minimal government intervention

  Existence of Private Property. All resources are owned by individuals.
• The laws of supply and demand

  Set price