Economics - Term 1 + Term 2 (MYP5)

Economics

management of a household, social science

Capital

machinery and tools

Resources

land, labor, capital

Positive economics

linked with facts/true or false, objective statements proved true/false based on empirical evidence

Normative economics

opinion based, value judgements not proven true/false based on empirical evidence, made by people and often form the basis of economic policy

Microeconomics

individual units; households, firms, industries

Macroeconomics

global economics

Branch of economics that studies the entire economy

aggregate consumption, aggregate production, aggregate investment, aggregate inflation, business cycle, unemployment, distribution of income

GDP

gross domestic product

GNI

gross national income

Recourses

factors of productions (FOP's)

Land (FOP)

rent

Labor (FOP)

wages and/or salary

Capital (FOP)

machinery/tools ---> interest

Entrepreneur (FOP)

utilizing land, labor, capital efficiently ---> profit

Wages

per hour basis (labor)

Salary

constant ---> per monthly basis

Labor intensive

labor price is cheaper than capital price (too much labor)

Capital intensive

labor is scarse

Economic system

market system and planned system

Market system (advantages)

1. wide variety of goods
2. innovation
3. profit motive
4. efficiency of resources
5. little to no taxes
6. has little government intervention

Market system (disadvantages)

1. poor working conditions
2. unethical production methods
3. damages the environment
4. non-profitable goods will not be sold
5. inefficient allocation of resources
6. unemployment

Planned system (advantages)

1. resources collectively owned
2. prices are controlled (control inflation)
3. equal opportunities in most cases (wages are set)
4. control over demerit and harmful goods (cigarettes and alcohol)
5. low levels of inequality and unemployment

Planned system (disadvantages)

1. demotivation (disincentive to work)
2. time-consuming process
3. lack of competition and development
4. not giving access to private companies (hoarding)
5. restricted individual rights
6. slow/no response to what consumers want and need

Mixed economy system

degree of mix varies from country to country, even in 'free' economies government intervention is part of the economic system

Mixed economy system (why?)

1. to create employment
2. provide public goods
3. provide merit goods
4. raise money by taxing more
5. stop harmful consumption
6. distribute goods and services equally

Adam Smith (1723-1790)

capitalist
founder of modern economics
3 laws - self-interest, competition, supply and demand

Karl Marx (1818-1883)

socialist
most controversial issue - poorly treated working classes
marxist/marxism

Market demand curve

as the price rises the quantity demand falls, as the price falls the quantity demand rises (price and quantity demand have a negative relationship)

Extension (market demand curve)

an increase in quantity demand

Contraction (market demand curve)

a decrease in quantity demand

Non- price determinant (determinants of demand)

1. weather/season
2. flavor (preference)
3. substitute goods
4. trends
5. location
6. income tax