Ellies Notes

• Economics

  A social science that deals with human society and behavior, especially those aspects concerned with how people organize their activities and how they behave to satisfy their needs and wants
• Economics

  • Its approach to studying human society is based on the scientific method
• Microeconomics


  Examines the behavior of individual decision-making units such as consumers and firms in the economy, and how their interactions in markets determine prices
• Macroeconomics

  Examines the economy as a whole to obtain an overall picture of the economy, using aggregates of many individual units
• 9 central concepts in economics

  • Scarcity
  • Choice
  • Efficiency
  • Equity
  • Economic wellbeing
  • Sustainability
  • Change
  • Interdependence
  • Intervention
• Scarcity

  The limited availability of economic resources relative to society's unlimited demand for goods and services
• Choice

  Since resources are scarce, economics is a study of choices, as not all needs and wants can be satisfied
• Efficiency

  A quantifiable concept, determined by the ratio of useful output to total input. Allocative efficiency refers to making the best possible use of scarce resources to produce the combination of goods and services that are optimum for society, minimizing resource waste
• Equity

  Refers to the idea of fairness, which may apply to the distribution of income, wealth, or human opportunity
• Economic wellbeing

  A multidimensional concept relating to the level of prosperity and quality of living standards enjoyed by members of an economy, including present and future financial security, the ability to meet basic needs, the ability to make economic choices permitting achievement of personal satisfaction, and the ability to maintain adequate income levels over the long-term
• Sustainability

  The ability of the present generation to meet its needs without compromising the ability of future generations to meet their own needs
• Change

  An understanding of the concept of change is essential in economics, as the economic world is in a continual state of flux
• Interdependence

  Individuals, communities and nations are not self-sufficient, and decisions by certain economic actors are likely to generate many, and often unintended, economic consequences for other actors
• Intervention

  Government involvement in the workings of markets, as markets may fail to achieve certain societal goals such as equity, economic well-being, or sustainability
• Factors of Production (FoPs)

  • Land
  • Labour
  • Capital/Capital goods
  • Entrepreneurship
• Opportunity cost

  The next best alternative that must be sacrificed to obtain something else
• Free goods

  Any good that's not scarce and therefore has 0 opportunity cost
• Economic goods

  Any good that's scarce, either because it's a naturally occurring scarce resource or because it's produced by scarce resources
• 3 basic economic questions

  • What/how much to produce
  • How to produce
  • For whom to produce
• Market method

  A type of output method where the FoPs are owned by private individuals, and consumers and firms make economic decisions by responding to prices determined by the markets
• Command method

  A type of output method where the FoPs are owned by the government, and the government makes economic decisions by commands, using legislation and regulation
• Economic systems

  • Free market economy
  • Planned economy
  • Mixed economy
• Free market economy

  An economic system based on the market approach, with private resource ownership, economic decision making by the private sector, and rationing done by price rationing
• Planned economy

  An economic system based on the command approach, with public resource ownership, economic decision making by the public sector (the government), and rationing done by non-price rationing such as queues
• Mixed economy

  A combination of the free market and planned economies, mostly based on the market method but with some government intervention to correct market deficiencies
• Production Possibility Curve (PPC) model

  Represents all combinations of the maximum amount of 2 goods that can be produced by an economy, given its FoPs and technology, when there's full employment of resources and efficiency in production
• Scarcity

  The economy cannot produce outside its PPC
• Scarcity

  The economy must make a choice about what combination of goods will be produced
• Scarcity

  Choices involve opportunity cost
• Increasing opportunity cost

  As the economy moves along the PPC, the opportunity cost gets larger as production of one good makes it less suitable for the production of the other good
• Constant opportunity cost

  As the economy moves along the PPC, the opportunity cost stays the same, as the FoPs are not equally suited to the production of both goods
• Positive economics

  Tries to describe, explain and predict economic events based on positive statements about what is, was, or will be
• Normative economics

  Based on beliefs or value judgements about what should happen, what is good or bad, or what is right or wrong
• Hypothesis

  An educated guess, usually indicating a cause-and-effect relationship about an event
• Theory

  A general explanation of a set of interrelated events, usually based on several hypotheses that have been tested successfully
• Model

  Built on the basis of well-established theories or laws, and may illustrate through diagrams or mathematical equations the important features of the theory or law
• Ceteris paribus assumption

  A tool used by economists to construct hypotheses, models, and theories, allowing to isolate and study the effects of one variable at a time
• Empirical evidence

  Real-world information, observations and data that we acquire through senses and experience
• Refutation

  A process in social sciences where it must be possible to disprove a hypothesis/theory through empirical testing
• Value judgements

  Important for economic policy-making, as they identify the important economic problems that should be addressed and recommend policies to solve them