PMIC LU1

What is Economics?

Economics is the study of how people use scarce resources to provide for their unlimited wants. It was developed to solve the problem of scarcity.

Why is economics a social science?

A science involves a systematic attempt to discover regular patterns of behaviour. Economics is a social science as it attempts to explain human behaviour (how we behave when economic variables change)

What is microeconomics?

It focuses on the individual parts of the economy such as the production of maize.

What is macroeconomics?

Macroeconomics studies the economy as a whole. An example is the total output of all good and services in the economy.

What is a positive statement?

A positive statement refers to a fact and can be measured.

Eg.) Kaizer Chiefs won the PSL in 2019

What is a normative statement?

It refers to a value judgement or opinion.

Eg.) The South African inflation rate is too high.

What is Rate of Change?

It is the expression of one value in terms of another value over a period of time.

Equation - NV - OV divided by OV all multiplied by 100

What is Level of Change?

It calculates the value of the change.

Equation - NV - OV

Explain correlation and causation

Correlation does NOT mean causation.

If two events occur together or tend to follow one another, it doesn’t mean that one is the cause of the other.

Where can we find efficient, inefficient and unattainable positions on the PPC?

E is all points ON ppc. I is all points IN the ppc. U is all points BEYOND ppc.

How do we illustrate scarcity on the ppc?

It is illustrated by the fact that all points to the right of the curve are unattainable.

How is choice illustrated on the ppc?

It is illustrated by the need to choose between the available combinations on the curve.

How is opportunity cost illustrated on the ppc?

It is illustrated by the negative slope and the opportunity cost for each product increases as we move along the ppc.

List the three key elements of the basic economic problem

It is scarcity, choice and opportunity cost.

What is “Demand”?

it refers to the quantity of a good a consumer wants and can PAY for. Demand is backed by purchasing power.

What is “Wants”?

It is the desire of a person for something they want but cannot pay for.

What is “Needs”?

They describe the basic things we require to live.

Explain opportunity cost

The opportunity cost of a choice is the value to the decision maker of the alternative that could have been chosen but was not chosen.

Define the production possibility curve

The PPC shows the maximum combination of two goods or services that a country can produce thus is attainable when all the resources are fully and efficiently employed.

Explain why economists might disagree

• they might make different value judgments

• They might not agree on the facts

• They might be biased

• They might hold different views about how the economy operates

Describe goods and services

Goods are tangible while services are intangible

Distinguish between consumer and capital goods

Consumer goods are produced to satisfy the wants of consumers and capital goods are goods used to produce capital goods, they depreciate over time and is a FoP

Name the 3 categories of consumer goods

1. Non-durable - used up now (food)

2. Semi-durable - used up in approx 6 months (clothing)

3. Durable - lasts longer than one year (cars)

What are final and intermediate goods?

Finals goods de used for consumption by the consumer while intermediate goods are materials that go into the product.

Differentiate between economic and free goods

An economic good is a good which has been produced hiding scarce resources and is referred to as scares goods. A free good is not scarce and does not have a cost.

What are homogenous and heterogeneous goods?

Homo - all exactly alike.

Hetero - referred to as differentiated goods