introduction to economics (micro 1)

basic economic problem

unlimited wants but scarce resources. economics looks at the best way to distribute these finite resources based on the target

opportunity cost

the benefit of the next best alternative

are economics goods unlimited or scarce

scarce

are free goods unlimited or scarce

unlimited

ceteris paribus

all other factors remain unchanged

positive statements

objective, can be proved or disproved

normative statements

subjective, and can only be backed by evidence

all the factors of production

capital
enterprise
land
labour

capital

anything that has been made by humans and is used to produce a good or service such as machinery, factories, tools and technologies

enterprise

the organizing and risk taking factor of production

land

all the resources provided by the nature that are used to produce goods

labour

all the human resources used in producing goods and services. the physical and mental contribution of the existing workforce

rewards for capital

interest

rewards for enterprise

profits

rewards for land

rent

rewards for labour

wages

the 3 economic agents

households/consumers
firms/producers
government

objectives of households/consumers

maximise utility

utility

the benefit or satisfaction a consumer gains from consuming a good or service

objectives of firms (typically)

maximise profit

objectives of government

many different objectives but mainly in order to improve social welfare - some include: low inflation, low unemployment, sustainable economic growth

objectives of consumers who don’t maximise utility

charity, helping the community, purchasing goods they do not want

objectives of firms who don’t maximise profit

charities, non profits, fairtrade

objectives of government not maximising social welfare

imperfect information or political considerations

production possibility curve (ppc)

all possible combinations of goods given the available resources

ppc graph is factors of production increase

outward shift - more resources to be utilised therefore production increases

ppc graph is factors of production decrease

inward shift - fewer resources to be utilised therefore cannot produce as much as before

why is a ppc concave

as you increase production, opportunity cost also increases. opportunity cost increases as not all factors of production used to produce a certain type of goods can be used to produce another type

opportunity cost of one good formula

sacrifice
————
gain