Economics

• Economists


  Use complex economic models to study how societies allocate scarce resources to meet unlimited wants
• Economics


  The study of how societies allocate scarce resources to meet unlimited wants
• Economic models


  • Provide understanding of economics
  • Make predictions, test theories and guide policy
  • May not capture all complexities
  • Assumptions can be unrealistic
• Ceteris paribus


  Assumption that "all else being equal" in Latin, allows economists to isolate the effect of one variable while holding others constant
• Changing one variable usually leads to changes in other variables
• Economists


  • Often use statistical analysis and natural experiments to draw conclusions
  • Analyse historical data to predict the impact of interest rate changes on economic growth
• Positive statements


  Objective, factual statements that can be tested and verified
• Normative statements


  Subjective statements that involve value judgements and opinions, express how things should be
• Policies shaped by value judgements, such as taxation, subsidies and regulations, may clash with economic growth goals
• Public opinion can influence government policies
• Scarcity


  Being in shortage of something
• Limited resources


  • Land
  • Labour
  • Capital
  • Time
• Unlimited wants


  People desire more goods and services than the limited resources can satisfy
• Opportunity cost


  The value of the best alternative not chosen
• Renewable resources


  • Can be replenished naturally over time, such as solar energy, wind energy, forests
• Non-renewable resources


  • Cannot be replaced naturally within a human timescale, such as fossil fuels, minerals and nuclear fuel
• Sustainability


  Understanding the difference between renewable and non-renewable resources is vital for sustainable resource management
• Depletion of non-renewable resources can lead to rising prices and economic challenges
• Production Possibility Frontier (PPF)

  A graphical representation of an economy's maximum production potential given its resources and technology
• PPF


  • Shows trade-off between producing different combinations of two goods or services
  • Illustrates opportunity cost through the slope of the curve
• Economic growth


  Shifts the PPF outward, showing increased productive capacity
• Decline in resources or technology

  Shifts the PPF inward
• Points inside the PPF

  Indicate inefficiency, where resources are underutilised
• Points outside the PPF


  Impossible to produce with current resources and technology
• Capital goods


  Goods used to produce other goods and services, such as machinery and factories
• Consumer goods


  Items purchased for personal use, such as clothing, food and electronics
• Consumption of consumer goods is essential for long-term economic growth and development
• Specialisation

  Concentration of individuals, firms or nations on producing a limited range of goods and services
• Division of labour


  A form of specialisation where tasks are divided among workers
• Advantages of specialisation


  • Increased productivity
  • Economies of scale
  • Lower costs
• Disadvantages of specialisation


  • Monotony for workers
  • Vulnerability to economic shocks due to heavy dependence on a single industry
• Comparative advantage


  When nations can focus on producing goods and services where they have a comparative advantage
• Functions of money


  • Medium of exchange
  • Measure of value
  • Store of value
  • Method of deferred payment
• Free market economy


  Economic decisions made by individuals and firms, guided by the "invisible hand" (Adam Smith)
• Command economy


  Government makes all economic decisions through centralised planning
• Mixed economy

  Both the private sector and government play significant roles in economic decision-making
• Income elasticity measures how sensitive consumer demand is to changes in disposable income.
• Market equilibrium occurs when the quantity of goods supplied in a market equals the quantity of goods demanded.
• Cross-price elasticity measures how responsive consumers are to changes in the prices of related products.
• Fiscal policy is used when there are fluctuations in economic activity such as recessions or booms.