ECONS TUTORIAL 1

• Economics


  The study of how people, firms and societies choose to allocate their scarce (i.e. limited) resources to satisfy some of their unlimited wants
• Microeconomics

  The study of the choices that individuals and business make, the way these choices interact and how the government can exert influence on them
• Macroeconomics


  The study of the performance of the national economy and the global economy
• Scarcity


  The condition in which our wants (for goods) are greater than the limited resources available to satisfy those wants
• Needs


  Things that we must have to survive
• Wants


  Things that we would like to have but which are not necessary for our immediate physical survival
• Choice


  People have to make choices because of scarcity. As our unlimited wants are greater than our limited resources, some wants must go unsatisfied
• Opportunity cost


  The next best alternative foregone when an economic decision is made
• Factors of production (Resources)


  • Land
  • Labour
  • Capital
  • Entrepreneurship
• Land


  Natural resources such as minerals, forests and water
• Labour


  The work time and work effort that people devote to producing goods and services
• Capital


  Includes physical capital (man-made resources) and human capital (knowledge and skills)
• Entrepreneurship


  The human resource that organizes the resources of land, labour and capital to produce goods, seek new business opportunities and develop new ways of doing things
• Production Possibility Frontier (PPF)


  Shows the maximum combinations of goods and services that can be produced by an economy in a given period, if all resources in the economy are being used fully and efficiently and the state of technology is fixed
• PPF


  • Illustrates scarcity, choice, and opportunity cost
• Increasing opportunity cost


  As more of one good is produced, larger and larger quantities of the other good must be sacrificed
• Constant opportunity cost


  As more of one good is produced, the same quantities of the other good must be sacrificed
• Shift of the PPF

  1. Increase in the amount of resources

  2. Improvement in the level of technology
• Economic growth is the expansion of the economy's production possibilities