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Complexity of Economics
Economics is complex because it's difficult to create policies that please everyone.
Understanding economics
Helps explain historical events, such as economic policies affecting wars and industrial growth.
Industrial Revolution & Economic Impact
Increased production, technological advancements, and transport improvements led to a higher standard of living.
Specialisation
Dividing work into specific tasks so workers improve and produce more efficiently.
Example of Specialisation
A pizza restaurant—each worker has a dedicated role, making operations more efficient.
Production Possibilities Frontier (PPF)
Graphical Representation: Shows the maximum possible output of two goods with limited resources.
Absolute Advantage
A country produces more of a good with the same resources.
Comparative Advantage
A country produces a good at a lower opportunity cost.
Benefits of Trade
Encourages specialisation, increasing efficiency.
Downsides of Trade
Safety concerns, worker exploitation, pollution, modern slavery & child labour.
Trade & Economic Growth
Countries engaged in trade develop faster, as isolation stunts economic progress.
Three Economic Questions
What to produce? How to produce? For whom to produce?
Factors of Production
Land, Labour, Capital - Key elements of economic production.
Free Market
Private ownership, competition, and consumer choice.
Planned Economy
Government control over resources and distribution.
Invisible Hand
Markets self-regulate through supply and demand.
Government in a Mixed Economy
Regulates businesses to prevent monopolies and protect consumers.
Example of Regulation
Denmark & Canada regulate more than North Korea, which is a command economy.
Regulations & Economic Trade-offs
Environmental laws increase costs but improve public health.
Challenges of Economic Theories
Theories often fail due to real-world complexities.
Deng Xiaoping's Pragmatic View
It doesn't matter if a system is socialist or capitalist as long as it works.
Definition of a Market
A place where buyers and sellers interact.
Voluntary Exchange
Trade benefits both buyers and sellers.
Law of Supply
Higher prices → More supply.
Law of Demand
Higher prices → Lower demand.
Equilibrium Price
The point where supply meets demand.
Factors Affecting Supply & Demand
Seasonal changes impact the price of strawberries.
Ethical Issues in Free Markets
Organ sales, exploitation, & inequality are concerns.
Price Signals
Prices guide businesses on what to produce.
Psychological factors
Influence consumer decisions.
Inflation
Reduces money's value over time.
Consumer Price Index (CPI)
Tracks price increases.
Nominal Values
Not adjusted for inflation.
Real Values
Adjusted for inflation.
Demand-Pull Inflation
Excessive demand raises prices.
Cost-Push Inflation
Higher production costs drive inflation.
Economic Bubbles
Overinflated assets eventually collapse.
Example of Economic Bubble
The housing bubble.
Macroeconomics
Studies national economies.
Economic Goals
Growth, Stability, Employment.
Gross Domestic Product (GDP)
Measures economic output.
Real GDP
Adjusted for inflation.
Recession
Economic decline leads to higher unemployment.
Types of Unemployment
Frictional, Structural, Cyclical.
Inverse Relationship
Higher GDP = Lower unemployment.
Business Cycles
Periods of expansion and recession.
Millennium Development Goals (MDGs)
UN goals to reduce poverty & improve living conditions.
Extreme Poverty Definition
Living on less than $1.90 per day.
Impact of Globalisation
Trade & technology boost economic development.
Outsourcing
Creates jobs but risks worker exploitation.
Microcredit
Small loans help entrepreneurs in poor nations.
Leapfrogging Technology
Developing countries adopt new tech quickly.
Sustainability Challenges
Balancing economic growth with environmental protection.
Opportunity Cost
Next best alternative forgone.
Scarcity & Choice
Limited resources require decision-making.
Incentives in Economics
People respond to rewards & penalties.
Microeconomics vs. Macroeconomics
Micro: Individual & business decisions. Macro: National & global economies.
GDP Per Capita
More accurate measure of wealth.
Productivity & Economic Success
Higher productivity leads to higher wages & growth.
Technology's Role in Growth
Automation & digital tools increase efficiency.
