Economics for CSEC Textbook

• Economics


  The study of how individuals, businesses, governments and societies make choices about how to use scarce resources to satisfy unlimited wants
• Scope of economics


  • Microeconomics
  • Macroeconomics
• Microeconomics


  • Focuses on the behaviour of individual economic agents like consumers and producers
  • Examines how prices and quantities are determined in individual markets
• Macroeconomics


  • Focuses on the behaviour of the economy as a whole
  • Examines issues like economic growth, inflation, unemployment and the balance of payments
• Rational


  (in classical economic theory) economic agents are able to consider the outcome of their choices and recognise the net benefits of each one
• Producers act rationally by


  Selling goods/services in a way that maximises their profits
• Workers act rationally by


  Balancing welfare at work with consideration of both pay and benefits
• Governments act rationally by


  Placing the interests of the people they serve first in order to maximise their welfare
• Rationality in classical economic theory is a flawed assumption as people usually don't act rationally
• Factors of production


  • Land
  • Labour
  • Capital
  • Entrepreneurship
• Primary factors of production

  Land, labour and entrepreneurship
• Resource allocation is the central problem of economics
• Economic systems


  • Free market economy
  • Command economy
  • Mixed economy
• Free market economy


  • Resources are allocated through the price mechanism
  • Decisions are made by individual consumers and producers
  • There is minimal government intervention
• Command economy


  • Resources are allocated by central planning
  • Decisions are made by the government
  • There is extensive government intervention
• Mixed economy


  • Contains elements of both free market and command economies
  • Resources are allocated through a combination of the price mechanism and central planning
  • There is a balance of government intervention and individual decision-making
• The cost of production includes both fixed and variable costs
• Types of business organisation

  • Sole proprietorship
  • Partnership
  • Joint stock company
  • Cooperative
  • Multinational corporation
• Sole proprietorship


  • Owned and managed by one individual
  • Unlimited liability
• Partnership


  • Owned and managed by two or more individuals
  • Unlimited liability
• Joint stock company


  • Owned by shareholders
  • Limited liability
  • Managed by a board of directors
• Multinational corporation (MNC)


  • Operates in more than one country
  • Centralised decision-making
  • Economies of scale
• Productive capacity


  The maximum output a firm can produce with its existing resources
• Economies of scale


  The reduction in average cost per unit as output increases
• Diseconomies of scale


  The increase in average cost per unit as output increases
• Division of labour


  The breaking down of a production process into a number of specialised tasks
• Market forces


  The interaction of demand and supply that determines the price and quantity of a good or service
• Determinants of demand


  • Price of the good
  • Income of consumers
  • Prices of related goods
  • Consumer tastes and preferences
  • Number of consumers
• Firm supply


  The quantity of a good that a single firm is willing and able to sell at different prices
• Industry supply


  The total quantity of a good that all firms in an industry are willing and able to sell at different prices
• Determinants of supply


  • Price of the good
  • Prices of factors of production
  • Technology
  • Number of firms
  • Government policies
• Equilibrium


  The point where the quantity demanded equals the quantity supplied
• Shortage


  A situation where the quantity demanded exceeds the quantity supplied at the current price
• Surplus


  A situation where the quantity supplied exceeds the quantity demanded at the current price
• Elasticity


  A measure of the responsiveness of one variable to changes in another variable
• Degrees of elasticity


  • Perfectly inelastic
  • Fairly inelastic
  • Unitary elasticity
  • Fairly elastic
  • Perfectly elastic
• Price elasticity of demand


  The responsiveness of quantity demanded to changes in price
• Price elasticity of supply


  The responsiveness of quantity supplied to changes in price
• Spectrum of markets


  • Perfect competition
  • Monopoly
  • Oligopoly
  • Monopolistic competition
• Perfect competition


  • Many sellers, many buyers
  • Homogeneous product
  • Free entry and exit