Economics Unit 1: Intro

What is economics? How do economics approach the world?

WISE ChoICES - 9 key concepts

well-being, interdependence, scarcity, efficiency, choice, intervention, change, equity, sustainability

Factors or production

land, labor, capital, entrepreneurship

Entrepreneurship

The skills, creativity, and risk-taking a business person has. The process of starting, organizing, managing, and assuming the responsibility for a business

Income for the FOP

Wages(labour), Interest(capital), Rent(land), Profit(entrepreneurship)

opportunity cost

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another

3 basic economic questions

What to produce? How to produce? For whom to produce?

free market economy

the market forces of demand and supply determine the allocation of scarce resources

planned economy

economy that relies on a centralized government to control all or most factors of production and to make all or most production and allocation decisions

mixed economy

an economic system combining private and public enterprise. The government intervenes to correct market failure

PPC (Production Possibilities Curve)

shows the relationship between the maximum production of one good for a given level of production of another good

Assumptions of ppc

resources are fixed, all resources are fully employed, only two things can be produced, technology is fixed

Circular flow of income model

a model showing the flow of resources from consumers (households) to firms, and the flow of products from firms to consumers, as well as money flows consisting of consumer income arising from the sale of their resources and firms revenues arising from the sale of their products

Injections into the circular flow

Investment (I), government spending (G) and export revenue (X)

Withdrawals or leakages

import expenditure (M), taxes(T), savings(S)

Ceteris Paribus

allows economists to examine what is most likely to occur if one variable changes while holding all other factors constant.

normative economics

The part of economics involving value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics.

Equity in economics

The concept of equity is about economic fairness with regards to the distribution of resources. It covers matters such as taxation policies and welfare payment schemes.

positive economics

the branch of economic analysis that describes the way the economy actually works, using empirical evidence, facts and refutation

equality in economics

concept of social fairness and collectivism, focusing on people having the same recognition and opportunities.

Eighteenth-century economics

Adam Smith and laissez-faire economics. He argued that rational economic behaviour and competition are vital to economic well-being. The idea of the invisible hand to describe how each decision maker's rational behaviour benefits society as a whole.

Nineteenth-century economics

classical economics - the self-regulation of markets to allocate resources efficiently. -favours competitive markets and international trade over command and control of the economy. Rational consumers aim to maximize personal satisfaction (utility maximization).

• Say's Law, which states that the ability to purchase a product depends on the ability to produce or supply it. -- Say's Law implies that national output is vital for economic growth and prosperity. -Marxism is a critique of classical economics, with its emphasis on meeting the needs and values of the masses, not just the privileges of minority capitalists.

Twentieth-century economics

Keynesian revolution -the use of interventionist macroeconomic policies, namely by increasing government expenditure and/or lowering taxes to stimulate spending in the economy.

• The latter part of the century saw the rise of monetarism (the new classical counter revolution), which focused on managing the economy's money supply to avoid macroeconomic problems such as inflation.

The twenty-first century economics

Role of behavioural economics with its links to psychology as well as the increasing awareness of the interdependencies that exist between the economy, society and the environment. This has caused many economies to move towards a circular economy model.

Economic methodology

Study of the processes, practices, and principles within the study of economics as a social science

empirical evidence

data and information acquired by observation or experimentation of certain behaviours and patterns in order to make logical and realistic projections for the future.