1.1 Nature of Economics

Economics

the study of how to allocate scarce resources to produce in the most efficient way

Microeconomics

the study of economic decisions made by individual economic agents e.g. firms

Economic model

a simplified version of reality that allows us to study economic behaviour

Social science

the study of human behaviour

Ceteris Paribus

all other things remain constant except one determinant

Positive statement

scientific and objective statements that can be proved to be either true or false with data and evidence

Normative statements

can't be supported or disproved and are peoples own judgements

Scarcity

when the demand for a resource is greater than the supply of that resource so it is limited

Economic goods

goods made with scarce factors

Free goods

goods made with factors that are not scarce

Factors of production

Land, labour, capital and enterprise

Land

all the natural resources of the economy including mineral deposits and other natural resources including the land itself

Labour

all the human resources and not just the quantity or number of workers but also their quality and productivity

Capital

machinery and anything else that is a man made aid to production

enterprise

individuals who take other factors and organise them to produce goods and services

PPF Curve

shows the maximum combination of goods and services produced in an economy assuming the factors are all working at maximum efficiency

Opportunity cost

the cost of the next best alternative forgone

Specialisation

where workers, firms or economies tend to concentrate on specific tasks and not any other tasks

Division of Labour

when workers specialise and concentrate on one task

Price mechanisms

the way price responds to changes in demand or supply for a product or factor input ( use of market forces to allocate resources in order to solve the economic problem of what, how, and for whom to produce)

Functions of money

1) Medium of exchange
2) Measure of value
3) Store of value
4)Deferred payment

Forms of money

1)Cash

2)Current accounts

3)Near monies

4)Non-money Financial assets

5)Money substitutes

Command economy

Where government controls and decides economic decisions