Section 1.1 Competitive Markets: Demand and Supply
Economics as a social science: It is concerned with human beings and the social systems by which they organize their activities to satisfy basic material needs (eg, education, knowledge, food, golf and shelter)
Economics: Concerned with the production of goods and services, and the consumption of these goods and services. Every country whether rich or poor has to make choices and is confronted with the key economic problem of scarcity.
Macroeconomics: The branch of economics which studies the working of the economy as a whole, or large sections such as all households, all business and government. The focus is on aggregate situations such as economic growth, inflation, unemployment, distribution of income and wealth, and external viability.
Microeconomics: The branch of economics that studies individual units i.e. sections of households, firms and industries and the way in which they make economic decisions. (both macro and microeconomics look at the three basic questions below)
Positive Statement: A statement that can be verified by empirical observation i.e. Brazil has the largest income gap in Latin America.
Normative Statement: a value judgement about what ought or should happen, i.e. more money should be spent on teacher’s salaries and less on WMD’s.
Scarcity: A situation where unlimited wants exist but the resources available to meet them are limited.
Resource allocation: The way that resources within an economy are split between their various uses – the way in which resources are used.
Factors of Production:
Land: natural resources, i.e trees, ocean, fertile land, minerals, sunshine Labor: human resources, physical or mental Capital: capital resources, man-made resources used in the production process i.e. machines in a factory Enterprise: organizing the above three in the production of goods or services
Ceteris Paribus: All things being equal – one of the assumptions used in many economic models, where an individual factor is changed while all others are held constant. (Use it!!)
Choice: The result of the economic problem of scarcity, and how you allocate resources to deal with the economic problem.
Utility: Benefits or satisfaction gained from consuming goods and services – hard to measure but we assume consumers make decisions based on maximizing utility.
Opportunity Cost: Cost measured in terms of the next best alternative forgone.
Economic Good: Things people want that are scarce – there is an opportunity cost involved.
Free Good: Commodities that have no price and no opportunity cost, i.e fresh air and sunshine
Production Possibility Curve
A curve showing all the possible combinations of two goods that a country can produce within a specified time with all its resources fully and efficiently used. The boundary between what is attainable and what is unattainable, given the current resources.
Public sector: That part of the economy where goods and services are provided by the government, i.e. public hospitals, roads, schools, parks and gardens.
Private sector: That part of the economy that is characterized by private ownership of the means of production by profit seeking individuals.
Command Economy: An economy where all economic decisions are made by a central authority. Usually associated with a socialist or communist economic system
Free Market Economy: an economy where all economic decisions are taken by individual households and firms, with no government intervention.
Mixed Economy: an economy where economic decisions are made partly by the government and partly through the market. (nearly every economy in the world)
Sustainable Development: Development that meets the needs of the present without compromising the ability of future generations to meet their own needs. (a key definition –