Economics

Humanities Y10

What is economics?

What is economics?

It’s the social science that examines the distribution, production and consumption of goods and how they affect each other. It analyses on how to allocate resources for different companies or purposes.

What is scarcity?

Central economic problem: resources are finite while human wishes are infinite. It can depend on location (eg. water is abundant is some places but not in others).

Examples of infinite wishes

Food, clothes, shelter, medicine, entertainment, children etc.

Examples of finite resources / 4 factors of production

Land, Labor, Capital and Entrepeneurship

Describe LAND

It refers to natural resources, such as minerals and forrests etc.

Describe LABOR

It refers to the skill and effort people put into the production

Describe CAPITAL

It refers to the machinery and tools used in the production.

Describe ENTREPENEURSHIP

It refers to the ideas and management of the production, the management of resources.

What is a labour-intensive economy?

The production relies on human work to produce the goods, such as farming by hand, sewing, cooking food etc.

What is a capital-intensive economy?

When the econies rely on the tools and machinery to produce, such as agriculture.

What is opportunity cost?

The benfits that are lost out on when one choice is made over the other.

Examples of opportunity cost

Choosing to drive to school instead of riding your bike. The opportunity cost might have been getting some fresh air in the morning, getting some exercise, doing something good for the environment, etc.

Define UTILITY

The satisfaction/value/benefit we get from a good.

Define MARGINAL UTILITY

The added satisfaction of having another of the same good.

Define TOTAL UTILITY

The total amount of value or satisfaction a consumer gets from the consumption of a good or service. You figure this out by adding together the marginal utility of each item.

Define DIMINISHING MARGINAL UTILITY

As every other factor is equal, the more you get a product the less satisfaction you will get. Products can differ in it, such as a haircut has a larger diminishing marginal utility than a coffee because you don’t need multiple on the same day.

Explain a diagram for diminishing marginal utility and total utility.

The product first has a lot of value but decreases as the numer bought increases.

Fill in the blanks (total utility, marginal utility, diminishing marginal utility and scarcity) 

With no Starbucks near school, the introduction of one would fulfill a ______________ that is currently evident. Initially, the ______________________of having access to Starbucks beverages would be substantial for the students, and nearly all students would stop by in the first week of the café opening. However, as students get used to the Starbucks and their monthly allowance runs out, the ___________________________would set in, meaning that each additional visit would provide less additional satisfaction. Despite this, the _________________ derived from having a Starbucks nearby would remain significant, as it would cater to the desires and preferences of the students, enhancing their overall satisfaction

(write

1. …

2. …)

1. scarcity 

2. marginal utility

3. diminishing marginal utility

4. total utility

What does the demand curve look like? (What happens to demand when the price goes up?) CONSUMER

As the price goes up the demand decreases. As a consumer, as a product becomes more expensive the value you would get from it decreases.

What does the supply curve look like? (What happens to supply when the price goes up?) PRODUCER

As the price goes up you are willing to produce more.

What is an equilibrium price?

The point where the demand curve and the supply curve intersect. This is the ideal point as the price is right for the consumers to buy it and the producers to be able to produce enough.

What is a Production Possibility Curve?

The curve is a negative slope but curved which means that there isn’t a regular relationship.  As more of one product is produced, it “costs” in production of the other product. You can focus on producing one good but that means the tools can’t be used as much for the other good.

What 4 things does the Production Possibility Curve assume?

1. All resources are for only 2 goods

2. Quantities of Factors of Production don’t change

3. Technology remains constant

4. Resources are used efficiently

What does it mean if an economy produces inside the shaded area of a Production Possibility Curve?

The economy is wasting resources and not producing to their full abilities.

If 75 toys are made, how many calculators can be produced?

200 calculators

Is E ideal?

No, the resources are not used to the maximum ability.

Is F possible? How could it be?

It isn’t possible with the settings the graph is made for but if the 4 factors of production change, F is possible.

What is a command economy (central planning)?

All descisions are taken by a central athority (eg. the government).

What are the advantages for a command economy?

Theoretically more equitable - everyone contributes and everyone has what they need. 

As there is less competition for resources, it may cause less destruction to the environment. 

What are the disadvantages for a command economy?

The allocations of products is hard to plan out (even for 5 years) which can result into some people in the population having shortages.

There is less incentive/motivation/innovation as there is less competition.

There is a limit to personal choice/preferance.

What is a free market economy?

Decisions are taken by consumers and producers. Producers produce what they think the consumers want and as efficiently as possible, and the consumers buy what they can afford and what they prefer

What are the advantages of a free market economy?

High individual liberties. For those who work hard and have good ideas, it is possible to make a lot of money. 

More incentive/innovation/motivation to work because there is competition.

What are the disdvantages of a free market economy?

Often lower quality to get maximum profit.

Resources are often unmanaged and can be used up too quickly.

Large firms can grow very quickly and increase their prices because of that.

It is theoretically less equal.

Do 100% free market or command economies exist in a country?

No. All countries fall on the spectrum of mixed economies.

Name some countries that are like a command economy

North Korea or Eritrea or Venezuela

Name some countries that are like a free market economy

Israel, Hong Kong, and Japan.

What is a transitonal economy?

Moving from central planning towards free markets and increasing economic freedom so that people are more easily able to start their own businesses. They do this by privatizing government owned industry and genrally shrinking the role of government in the economy

Name some countries that have a transitional economy?

China, Russia and Vietnam.