Business - Chapters 31, 32, 33 and 35: Economy

Scarcity and Choice, Economic Resources, Demand and Supply, Taxation and Economic Indicators

Economics

A social science that studies how people with limited resources make decisions to satisfy their needs and wants

Economic resources

Economic resources are the factors or inputs used to produce and distribute goods services and wealth. These resources help us to meet our needs and achieve our goals.

Utility

If deciding between two or more alternatives, you should choose the one that offers the greatest benefit or satisfaction from our limited resources

Factors of Production

The economic resources used tp

• Land

• Labour

• Capital

• Enterprise

What choices have to be made about the production of goods

> What will be produced

> How it will be produced

> Where it will be produced

> Who will receive the goods and services produced.

Economy

The system used to produce and use goods and services in a country or region

Public Sector

Part of the economy that is owned and controlled by the government. It provides service that aren’t provided by the private sector

Private Sector

Businesses owned by private individuals that produce and sell goods with an aim of making a profit

Centrally Planned economy

An economy where the government has a lot of control over economic resources and decision making. (North Korea, Cuba)

Free market economy

An economy where private individuals control resources, own businesses and make decisions on what resources will be produced. (USA, Singapore, Switzerland)

Mixed Economy

An economy that combines elements of a free market and centrally planned economy. (Ireland)

Third Sector

Social enterprises and not-for-profit organisations such as charities

market

A place where buyers and sellers connect with each other to trade or exchange goods and services

Factor Markets

Where the factors of production are bought and sold (property market, stock market, etc.)

Demand

The quantity of a product that buyers are willing to purchase at a given price

Effective Demand

A willingness to buy, backed up by an ability to pay

Consumer Behaviour Assumptions

• Consumers are rational

• Consumers have to make choices to get the most out of their limited resources

• Consumers will try to get the most utility as possible

Law of diminishing marginal utility

The benefit or satisfaction that a consumer receives from consuming a good or service decreases over time.

Relationship between demand and price

• When price is reduced, demand will increase​

• When price increases, demand will fall. ​

Demand schedule

Shows the number of goods demanded by customers at different price levels.​

Substitute Good

A product that can be used instead of another good

Demand Curve

A graph that illustrates the expected demand for a product at various price levels

Complementary good

A product that is used with another product (Xbox and Controller)

Reasons a Demand Curve could shift:

• Price of substitute goods

• Price of complementary goods

• Fads and Fashion

• Advertising

• Government Regulations

• Changes in population

Normal Good

One that will be in greater demand when the buyer’s income rises.

Inferior Good

One for which there will be less demand when the buyer’s income rises. For example,consumers with extra income may buy premium brands rather than own-brand products.

Supply

Refers to the quantity of a product that producers are willing to sell at a given price. ​

Relationship between supply and price

• Supply will increase when the selling price increases

• Supply will decrease when the selling price decreases.

Supply Curve

A graph that illustrates the quantity of a product that a seller is willing and able to supply at a series of price points. ​

Reasons a Supply Curve could shift:

• Environmental Conditions

• Price of other Goods

• Technology

• New suppliers

Quotas

A limit on the number of goods made available for sale

Equilibrium

In the marketplace, supply and demand interact until a balanced position is reached. ​

Market Equilibrium

The price point at which the quantity supplied equals the quantity demanded.​

Taxation

A compulsory payment made by individuals and organisations to the government and used to fund public services. ​

Revenue (org)

The state body responsible for collecting all taxes in the Republic of Ireland. ​

Principle of a fair Tax System

• Equality

• Certainty

• Economy

• Convenience

Convenience in a tax system

It should be easy for each person to pay their taxes when they fall due.​

Economy in a tax system

The cost of collecting a tax should be less than the amount that will be collected.​

Certainty in a tax system

The amount of tax that a person must pay should be clear and predictable.​

Equality in a tax system

The amount of tax that a person has to pay should be related to their ability to pay – in other words, those who earn more should pay more.​

The shadow/black economy​

Refers to illegal economic activity where people try to hide income or wealth from being recorded in order to avoid tax.

The purpose of taxation​

• Financial reasons: Using taxation as a source of income to fund government spending.​

• Social reasons: Using taxation to try to improve society and people’s lives.​

• Legal reasons: Complying with the law of the land.​

• Ethical reasons: Using tax in ways that are just and fair toall.​