Introduction to Economics and Key Concepts

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.