What is Economics?

Economics

Study of how scarce resources are allocated to fulfill the infinite wants of economic agents

Basic Economic Problem

What How Who

Microeconomics

The behaviour of individuals and firms, and how they make economic decisions

Macroeconomics

The economy as a whole; aggregates of the economy and on countries' fundamental economic goals

Variables of the Fundamental Economic Goal

Economic Growth, Employment, Inflation, Income Distribution

Scarcity

Limited availability of economic resources relative to society's unlimited demand for goods and services

Rationing System

Controlled distribution of scarce resources, goods, services, or an artificial restriction of demand

Factors of Production

Land, Labour, Capital, Enterprise

Choice

Decisions between competing alternatives and the consequence of such decision

Opportunity Cost

The next best alternative foregone when an economic decision is made

Equity

The concept of fairness, in context of the distribution of income, wealth or human opportunity

Efficiency

Input-output Ratio

Allocative Efficiency

Best possible use of scarce resources to produce the combination of goods and services optimum for society

Production Possibility Curve

Illustrates the maximum combinations of two goods an economy can produce; all combination of the maximum amount of goods an economy can produce

PPC Assumptions

2 Types of Goods, No Idle Resources, Resources Used Efficiently, Constant State of Technology, Ceteris Paribus

Constant Opportunity Cost

Opportunity cost does not change; perfect mobility of factors of production

Free Good

A good or service which is unlimited in supply

Model

Simplifications of a complex world to understand the relationship between (limited amount of) variables.

Circular Flow of Income

Shows the flow of money through the economy

Interdependence

The growing interaction and reliance on others to achieve economic goals; community and nations are not self-sufficient

Globalisation

High level of interdependency between nations; decisions made in one part of the world have economic consequences for individuals and firms elsewhere.

Leakages and Injections

Government, Financial Institution, International Trade

Economic Well-Being

Level of prosperity and quality of living standards

Factors of Economic Well-Being

Financial Security, Meeting of Basic Needs, Permitting of Achieving Personal Satisfaction, Maintain Adequate Income Levels

Intervention

Government involvement in workings of markets in the private sector; markets may fail to achieve certain societal goals, including equity, economic well-being, sustainability

Free Market Economy

Market forces of demand and supply allocates scarce resources via the private sector

Planned Economy

The government allocates scarce resources. Often associated with communist / socialism economies that strive for social equality

Mixed Economy

A combination of planned and market economic systems. Government intervenes to correct perceived market imperfections / failures

Change

The economic world is continuously evolving and economists must be aware of this and adapt their thinking accordingly

Sustainability

The ability of the present generation to meet its needs without compromising the ability of future generations to meet their own needs

Economic Agents

Any individual, household, firm or government that makes decisions about the allocation of scarce resources

Ceteris Paribus

“all other things being equal“