Economics

John Maynard Keynes

An English economist who was known for his theories on government intervention in the economy. He believed that during times of economic downturn, the government should increase spending and lower taxes to stimulate demand and boost economic growth.

Karl Marx

A German economist who was known for his influential works on communism and socialism. His ideas emphasised the struggle between the bourgeoisie (capitalist class) and the proletariat (working class), advocating for the overthrow of capitalism and the establishment of a classless society.

David Ricardo

A British economist who was known for his theory of comparative advantage, which explains how international trade through specialisation can maximize overall economic welfare.

Adam Smith

A Scottish economist who was known as the father of modern economics. Developed the concept of free-market capitalism and the invisible hand theory.

The Invisible hand theory

An economic concept that suggests individuals pursuing their self-interests in a free market will unintentionally benefit the common good as a whole through the invisible hand of market forces.

Comparative advantage theory

an economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners. 

Specialisation

Where individuals, firms or countries prioritise the production of certain goods and services in which they have lower opportunity costs in. This allows an increase in production efficiency between countries, economic growth and international trade.

Opportunity Cost

The potential benefits that an individual, investor, or business miss out on when choosing one alternative over another.

Economic Systems

System of production that societies and governments use to determine how they will distribute goods, services and resources within a society or a given geographic area.

Market Economy

An economic system in which the laws of supply and demand regulate the production of goods and services within an economy, rather than government intervention.

Planned Economy

An economic system in which a central authority direct the production and distribution of goods and services.

Mixed Economy

An economic system that combines aspects of both government intervention and free markets. It protects private property while allowing a level of economic freedom with some government interference in order to achieve social aims.

Capitalism

A political system that advocates for private actors to own and control all means of production in accord to their own self-interests through the Laissez faire philosophy.

Socialism

A political system in which the means of production and other forms of capital are collectively, communally or publicly owned. This economic theory advocates for the rights of the working class.

Communism

A political system in which a central authority owns all property and the means of production are owned communally. Private property does not exist in this system.

Basic Economic Problem

The basic economic problem is a concept that states that resources are scarce in comparison to our unlimited wants and choices must be made to determine how to best produce and distribute these resources.

Production Possibility Frontier (PPF) Curve

A graph that shows all the different combinations of output of two goods that can be produced using the available resources and technology. The curve can also depict the concept of scarcity, choice, and tradeoffs.

Microeconomics

The study of how individual actors make choices in response to changes in incentives, prices, resources and/or methods of production.

Macroeconomics

The study of economic phenomena that affects an entire economy and how it behaves.

The 4 Key economic questions

What to produce, how to produce, how much to produce and for whom to produce.

Economics

The study of how we can allocate relatively scarce resources to fulfil the infinite wants of consumers.

The importance of economics

It can enhance personal financial literacy, enabling better management of capital while providing insights on how individuals can make choices with limited resources.

Factors of production

The building blocks for an economy. Land, Labour, Capital and enterprise

Laissez-faire

An economic philosophy that promotes the idea that a free market through supply and demand will regulate itself on the basis that there is minimal government intervention.

Relative scarcity

The fundamental economic condition where resources, including time, labor, and capital, are limited in relation to human wants and needs.

Choices

The decisions that need to be made regarding how the finite resources are allocated amongst different uses.

The Economic decision theory

The interplay of scarcity, choice, and opportunity cost that forms the foundation of the economic decision theory that guides individuals, businesses, and governments in making optimal choices to maximize their objectives within the constraints of limited resources.

Importance of the 4 key questions

The purpose of these questions is to guide the decision-making process in an economy, helping to determine the most efficient and effective use of limited resources to meet the needs and wants of society.

Land

The natural resources used in production. E.g. fertile soil for agriculture and mineral deposits for mining.

Labor

The human effort and skills applied to production. E.g. factory workers assembling products and doctors providing medical care.

Capital

The physical and financial assets used to produce goods and services. E.g. machinery in a manufacturing plant and funds invested in a business.

Entrepreneurship

The innovation and organization of other factors of production. E.g. a startup founder developing a new app and a business owner launching a unique restaurant concept.

Market economy outline

The decisions are made by individual buyers and sellers in pursuit of their self interest and there is limited government intervention (ensuring property rights and preventing market failures).

Planned economy outline

The decisions are made by government authorities and often focus on collective wellbeing. There is extensive government control over industries, resources, and distribution to promote social equality.

Mixed economy outline

The decisions are made by individuals and businesses while the government intervenes to address market failures, provide public goods and ensure societal safety.

Market economy strengths

Efficient resource allocation, incentives for innovation and entrepreneurship, consumer choice, adaptability to changing conditions, individual freedom.

Mixed economy strengths

Balances market efficiency with government intervention, addresses market failures, provides social safety nets, encourages innovation, allows for equitable distribution.

Planned economy strengths

Reduced income inequality, guaranteed basic needs for all, central planning can prioritize public welfare, potential for collective decision-making.

Socialism strengths

Comprehensive social safety nets, equal access to education and healthcare, reduced poverty, strong public services, democratic decision-making.

Communism strengths

Elimination of class disparities, collective ownership, potential for strong social cohesion, focus on community well-being over individual gain.

Capitalism strengths

Incentives for innovation and competition, individual freedom and choice, efficient allocation of resources, adaptability to market changes.

Classical economics (Adam Smith)

Emphasizes the role of self interest, competition, and free markets in guiding economic activity. It advocates for minimal government intervention and believes that an "invisible hand" in a free market will lead to optimal resource allocation and overall societal well-being.

Supply side economics

Emphasizes policies that aim to boost economic growth by focusing on increasing the supply of goods and services. It argues that reducing taxes, particularly on businesses and high-income earners, can incentivize production, investment, and innovation, ultimately leading to higher economic output.

Monetarism economics

Emphasizes the role of the money supply in influencing economic activity. Centralizes around the belief that controlling the money supply is crucial to controlling inflation and stabilizing the economy.

Industrial revolution (1800s-1900s)

Highlighted the role of self-interest, competition, specialisation and free market in driving economic growth.

The Great Depression (1923-1939)

Showcased the limitations of relying solely on market mechanisms. Keynesian ideas gained prominence during this time, as the massive unemployment and economic downturn highlighted the need for government intervention to stimulate demand.

Market economy weaknesses

Income inequality, potential for market failures (e.g., externalities, monopolies), limited social safety nets, uneven access to essential necessities.

Mixed economy weaknesses

Potential for bureaucratic inefficiencies, disagreement on the extent of government involvement, challenges in finding the right balance.

Planned economy weaknesses

Bureaucratic inefficiencies, lack of individual incentives for innovation and hard work, limited consumer choice, potential for shortages and surpluses.

Socialism weaknesses

Higher taxes, potential for government inefficiencies, challenges in managing public expenditures, balancing economic growth with social welfare.

Communism weaknesses

Lack of individual incentives, potential for authoritarian rule, challenges in resource allocation and coordination, historically prone to inefficiencies.

Capitalism weaknesses

Income inequality, potential for exploitation, market-driven focus might neglect social welfare, risk of monopolies and market failures.