Economics Syllabus

• Economics


  The study of how individuals, businesses, governments and societies as a whole, employ resources to satisfy competing wants and needs, in light of scarcity
• Three basic economic problems/questions

  • What goods and services will be produced?
  • How would these goods and services be produced?
  • Who would consume these goods and services?
• Five economic goals


  • Economic Efficiency: Making the most of resources without waste
  • Economic Freedom: Being able to make choices about which goods and services to produce and distribute without government interference or intervention
  • Economic Security: Knowing that goods and services will be available when needed. Having a safety net that protects individuals in a time of economic disaster
  • Economic Equity: A fair distribution of wealth
  • Economic Growth and Innovation: Using new ideas and ways of creating goods and services leads to growth and a higher standard of living or way of life for all
• Economy


  The system in which available resources are distributed to meet society's wants and needs
• Four basic types of economies

  • Traditional Economies
  • Planned/Command Economies
  • Free Market Economies
  • Mixed Economies
• Traditional Economies


  • Traditions, customs, and beliefs help shape the goods and the services the economy produces, as well as the rules and manner of their distribution
  • Countries that use this type of economic system are often rural and farm-based
• Advantages of Traditional Economies

  • Each family is aware of their respective role in sustaining the economy
  • Leaders are impartial in the distribution of food, shelter and health care
• Disadvantages of Traditional Economies

  • Not usually receptive to the introduction of new technology
• Planned/Command Economies


  • Governmental planning groups make the basic economic decisions
  • They determine such things as which goods and services to produce, their prices, and wage rates
• Advantages of Planned/Command Economies

  • Equality is focused on as the government seeks to distribute all resources impartially
  • The ability to direct a nation's resources in line with national goals
  • Economy is usually stable, with the economy not subjected to high unemployment and inflation rates
• Disadvantages of Planned/Command Economies

  • The enforcement of policies despite how unpopular they are with the masses
  • There is little freedom, as people are not allowed to choose where to seek employment, negotiate pay rates or to purchase goods of choice
  • Quality is normally compromised to meet quantity requirements
• Free Market Economies


  • Economic decisions are guided by the changes in prices that occur as individual buyers and sellers interact in the market place
  • Also referred to as a price system, free enterprise, capitalism, and laissez-faire
• Advantages of Free Market Economies

  • It functions freely, and firms and sectors of the economy are not obligated to coordinating plans in line with government economic decisions
  • Companies are able to easily respond to day to day changes in demand and supply without having to adhere to too much government protocol
  • Inhabitants have total responsibility over their own well-being, and are expected to find their own jobs, negotiate salaries, purchase goods of their choice etc.
• Disadvantages of Free Market Economies

  • The basic needs of the populous are not always provided, such as food, shelter and health care, resulting in the development of a class structure and poverty
  • Economy tends to be unstable with periods of unemployment, inflation and even recessions
  • Lack of job security, due to uncertainty in the business world and companies not producing efficiently, thus not meeting projected profit targets
• Mixed Economies


  • To some degree, all modern economies exhibit characteristics of both systems
  • The government makes many important economic decisions, even though the price system is still predominant
  • Private individuals frequently engage in market activities, particularly in small towns and villages
• Advantages of Mixed Economies

  • Social, political, business ownership and profit earning freedoms are maintained
  • Higher quality products and services are offered due to competition among firms/companies and strict regulatory standards
  • The public and private sector in most cases work in tandem to ultimately increase the production of the country/region
• Disadvantages of Mixed Economies

  • The government is in some cases very influential in the economy, engineering policies which alter interest rates, taxes and (the) money supply in an effort to achieve its targets
  • The economy is driven by the private sector, with them being responsible for the overall growth of the economy, the at times instability, and due to changes in their respective markets, unemployment, inflation and recession
  • Some sectors in the economy operate as a monopoly, whether they are run privately or by the government. These monopolies stand a greater risk of being inefficient, which can lead to higher prices for the consumer
• Scarcity


  The lack of what is available, relative to that wanted, that leads to the reality of us all making choices
• Opportunity cost


  The value of the next best alternative this decision forces a person to do without
• Monetary cost


  The amount of liquid funds that a product or service costs a consumer to buy
• Production possibility frontier


  A graph that shows the possible combinations of goods that a producer can manufacture given the available resources and the current level of technology
• The production possibility frontier shows that the greater the quantity of one good that is produced, the smaller the quantity that can be produced of the other good
• Production


  The means by which resources (whether tangible, such as, raw materials or intangible, such as, ideas/information) are transformed into goods (tangible) and services (intangible)
• Productivity


  The measure of the efficiency of the production process, calculated as the ratio of what is produced to what is required to produce it
• Factors of production


  • Land: includes all the world's natural resources
  • Labour: the physical and mental input contributed by humans to the production process
  • Capital: the collection of man-made inputs used in the production of other goods
  • Entrepreneurial talent
• Advantages of division of labour

  • The repetitive nature of one's task will ultimately lead to mastery in the area, and persons being more efficient
  • Cuts production time, as workers do not have to switch between tasks
  • Leads to more inventions in specific fields
• Disadvantages of division of labour

  • Very monotonous and will lead to a loss of interest
  • Does not promote employee diversification as it requires workers to focus on a particular task, thus limited their capacity to function in other areas
  • Risk of unemployment, due to the limitation of being skilful in only one area
• Types of costs a firm faces

  • Variable costs: increase and decrease with the productivity of a firm
  • Fixed costs: exist regardless of the level of production of the firm
  • Total cost: the sum of total fixed costs and total variable costs
  • Average cost: total cost divided by output or quantity produced
  • Marginal cost: the increase in total cost that arises from the production of an additional unit of output
• Economies of scale


  When the inputs into the production of a certain good increases by an amount/percentage, X, and the quantity of output rises by more than X percent
• Diseconomies of scale


  A rise in the average total cost as output increases
• Market systems


  Decisions relating to resource allocation, production, consumption and price levels are left up to individuals and organizations, who act in their own best interest
• Demand


  How much quantity of a good or service is desired by consumers
• Supply


  The amount of a good or service producers are willing to offer at a particular price
• Ceteris paribus


  All other things being unchanged or constant
• Law of demand


  The higher the price of a good or service, the less of these products consumers are willing to purchase, ceteris paribus
• Law of supply


  As the price of a commodity rises, so does the quantity supplied, ceteris paribus

  
• Factors that shift the demand curve

  • Disposable income
  • Consumer preferences
  • Changes in population size
  • Changes in the price of substitutes or complements

  
• Factors that shift the supply curve

  • Price of inputs
  • Improvements in technology
  • Number of suppliers
  • Prices of related goods

  
• Market equilibrium


  The intersection where the supply and demand curves meet, where the quantity supplied is equal to the quantity demanded and the market is most efficient

  
• Market failure


  When the market does not provide the most efficient allocation of resources in the economy