Introduction to economics (copy)

Microeconomics:

A branch of economics which studies the behaviour of individuals and firms in particular markets

Macroeconomics:

A branch of economics which studies the behaviour of the government and the economy as a whole

What type of science is economics?

Social science - studies the behaviour of individuals and societies when allocating scarce resources to meet unlimited needs and wants

The basis of the study of economics:

microeconomics and macroeconomics

The nine central concepts of the economics course:

Well-being

Interdependence

Scarcity

Efficiency

Choices

Intervention

Change

Equity

Sustainability

Define Factors of Production

refers to the resources required to produce goods and services

Factors of Production:

Capital

Entrepreneur

Land

Labour

Define the factors of Production

Capital - man-made resources

Entrepreneur - the skill of organising the three other factors of production

Land - natural resources

Labour - human resources (workers)

What are factors of income?

Factor income is income received from the factors of production

What is the factor of income for capital?

interest

What is the factor of income for Entrepreneur/enterprise?

Profit

What is the factor of income for land?

Rent

What are the 3 basic economic questions?

1. What how much to produce?

2. How to produce?

3. For whom to produce?

What is the process of the circular flow of income?

1. households provide resources to businesses

2. firms provide income to households

3. firms use the resources to produce goods and services for households

4. households provide expenditure (spend money) to businesses

5. the cycle repeats

What does the circular flow of income show?

the interaction between households and firms

Why is this model over-simplified? What are the assumptions made?

There are no injections or leakages:

• only 2 economic agents

• no gov intervention (tax/gov spending)

• no financial sector (savings/investments)

• no foreign economics involved (trade= imports

  /exports)

what does sustainability mean?

the ability to meet the needs of the present without compromising the ability of future generations to meet their needs

1. What is a leakage in the circular flow of income?

2. What is an injection into the circular flow of income?

1. refers to the withdrawal of money from the circular flow of income

2. refers to the additional money added into the circular flow of income

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