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What is economics the study of
study of choices concerned with production, consumption and the transfer of wealth through goods and services within an economy
What is an economy
set of interrelated production and consumption activities that aid in the allocation of scarce resources
What is the economic problem?
We have unlimited needs and wants, but limited resources
Since resources are scarce, we must choose what wants to satisfy and what wants are left unsatisfied
Maslow’s hierarchy of needs
Self Actualisation: Achieving one’s full potential
Esteem Needs: Prestige, feeling of accomplishment
Belonging: Intimate relationships and friends
Safety Needs: Security and safety
Physiological Needs: Food, water, warmth, rest
What are wants
Defined as the material desires of individuals of the community
Individuals derive …. from the consumption of goods and services
utility (satisfaction)
What are the different types of wants
Individual wants
Collective wants
Recurrent Wants
Complementary Wants
Unlimited wants
What are individual wants and give an example
Desires of each person (eg. iPhone)
What do individual wants depend on
Personal preference but can be influenced by broader social trends
What types of individuals are affected by the economic problem more than others
Individuals with low incomes
What are collective wants and give an example
Wants of the whole community and are provided by the government (eg. local government provides parks)
What is a recurrent want and give an example
Wants that have to be satisfied constantly (eg. food)
What are complementary wants and give an example
Wants that naturally follow the initial satisfaction of another want (eg. you need a helmet after buying a bike)
What are unlimited wants
As soon as we have satisfied one want, we will want to satisfy another one
What are the four key economic issues and who determines them
What goods should be produced? (consumers)
How many goods should be produced? (business)
How should the goods be produced? (business)
Who gets the goods? (income level)
Why is there a conflict between equity and efficiency when deciding how to distribute production
More efficient systems produce less equitable outcomes
What is opportunity cost
Whenever we satisfy one want, we are giving up the opportunity of satisfying an alternative want
The real cost of satisfying a want is the next best alternative we have to forgo
What is another name for opportunity cost
economic reason/real costwh
What does PPF stand for
Production Possibility Frontier
What is the PPF
Graphical representation of all the possible combinations of the production of two goods or services that the economy can produce at any given time
What does the PPF assume
Given technology and a fixed quantity of resources, with all resources at their full capacity
What does the PPF demonstrate
How opportunity costs arise when choices are made
All the points on the frontier represent points at which the economy is operating at
full productive capacity
If the economy was producing at a point inside the curve, it would be producing
less than its maximum possible output and resources would not be fully employed
With the application of new technology, we may be able to develop more efficient methods of production.
How would this be represented on the PPF?
Outward shift produce a higher quantity of goods with the same resources
Anything that increases the availability of production inputs will
change the PPF
The discovery of new resources or an expansion of the population through immigration would increase the availability of production inputs.
How will this change the PPF?
Outward shift because we are to produce more of both goods
What is unemployment
The problem of a person being available for work but unable to find it
If any resources are not fully employed, what would change on the PPF?
The PPF wouldn’t change, but our position in relation to it would
What does an economy producing at a point within the PPF indicate?
There is an inefficient allocation of resources and a maximum satisfaction of wants is not being achieved with the minimal opportunity cost (effective outcome)
The total output of goods and services is less than what it could be
In order for the PPF to have been straight, what must be possible
To shift all resources between the production of oil and leather so that the opportunity cost of producing leather is constant
Why is the PPF generally not straight
We cannot expect to remove resources from oil to leather, as they will become less productive, increasing the opportunity cost of leather
What is the proper shape of the PPF
concave
What two goods does an economy have to choose between producing
consumer goods and capital goods
What are consumer goods? (example)
Consumer goods and services are items produced for the immediate satisfaction of individual and community needs and wants
Eg. food, appliances, clothing and cars
What are capital goods? (example)
Capital goods are items that have not been produced for immediate consumption but will be used for the production of other goods
Eg. buildings, machinery and tools
An economy that focuses more on the production of capital goods will
increase its productive capacity and experience a higher level of economic growth
A country that is producing at a higher point on the PPF will be able to satisfy its ……… better than a country at a lower point on the PPF
consumer wants
What factors influence an individual’s economic choices
Age
Income
Expectations
Future plans
Personality
Family circumstances
Individuals with fewer financial resources are focused on
meeting basic necessities
Individuals contribute to economic decision making by
voting
Businesses seek to minimise ……. while maximising ……..
costs
quality
The pricing decisions businesses make are also based on their marketing strategy -
whether they are trying to appeal to the mass market or an exclusive group of customers
Governments have significant influence over the economic choices of? (example for each)
Individuals and businesses
eg.
taxing cigarettes discourages individuals from smoking
businesses operating in the same industry are prohibited from meeting together to set prices for their industry
What is a market
When buyers and sellers exchange goods and services
What is a factor market (example)
A market for the buying and selling of factors of production (eg. real estate, machinery)
What is a product market
A market for the buying and selling of products (eg. groceries, playstation)
