Introduction to Economics: Key Concepts and Models

What is Economics?

The study of choices made in the face of scarcity, where resources are limited and human wants are unlimited.

What are the 4 factors of production?

Land, Labour, Capital, Entrepreneurship

What does ‘Land’ refer to in economics?

Natural resources such as raw materials and water.

What does ‘Land’ refer to in economics?

Natural resources such as raw materials and water.

What is ‘Capital’ in the context of economics?

Man-made tools and machines used in the production of goods and services.

What role does ‘Entrepreneurship’ play in economics?

It organises resources, takes risks, and innovates to product goods and services.

What is the payment for Land?

Rent

What is the payment for Labour?

Wages

What is the payment for Capital?

Interest

What is the payment for Entrepreneurship?

Profit

What is the basic economic problem?

Resources are scarce while human wants are infinite, leading to the need for allocation and choice.

What are the three basic economic questions?

1. What to produce?

2. How to produce?

3. For whom to produce?

What is Opportunity Cost?

The value of the next best alternative forgone when a choice is made.

What is the formula for Opportunity Cost?

Opportunity Cost = what is given up ÷ what is gained

What are economic models?

Simplified descriptions of reality used to explain economic behaviour and make predictions.

What is a positive statement?

A statement based on facts and data that can be tested or proven.

What is a normative statement?

A judgement based on opinions or value judgements that cannot be tested or proven.

What is the difference between microeconomics and macroeconomics?

Microeconomics studies individual decision makers and markets, while macroeconomics studies the economy as a whole.

What do economist provide?

Objective, data-based analysis and explanations of possible outcomes.

What role do politicians play in economics?

They make decisions and determine what is desirable or important.

Give me an example of a positive statement.

Inflation rate increased this year.

Give me an example of normative statement.

Government should provide free education.