Eco notes 1st

Introduction to Economics

The Economic Problem

• Economics is the social science studying how societies solve the economic problem of scarcity.

• Key points:

  • Unlimited wants

  • Scarce resources

  • Necessity to prioritize and make choices

Goods and Services

• Goods: Physical objects to satisfy needs and wants

  • Examples: Food, clothing, shelter

• Services: Actions to satisfy needs and wants

  • Examples: Education, healthcare, police force

Needs and Wants

• Needs: Essentials for survival

  • Examples: Food, shelter, clothing

• Wants: Desires providing pleasure or satisfaction

  • Examples will vary by individual and community.

Classification of Wants

• Individual wants: Depends on personal preferences and purchasing ability.

• Collective wants: Needs of the community, often provided by the government.

• Characteristics of Wants:

  • Limitless: Once satisfied, new wants arise.

  • Competing: Limited resources lead to competition.

  • Changing: Influenced by various factors (age, income, fashion).

  • Recurrent: Certain wants must be satisfied repeatedly (like petrol).

  • Interdependent: Some wants are necessary for others (e.g., vehicles need fuel).

Key Economic Issues

1. What to Produce? Decision on goods/services to satisfy individual and collective wants.

2. How Much to Produce? Deciding the quantity to maximize satisfaction and efficiency.

3. How to Produce? Choosing efficient methods while minimizing resource use.

4. How to Distribute Production? Distribution based on income levels, affecting access to goods/services.

Opportunity Cost

• Represents the cost of forgoing the next best alternative when making a choice.

• Illustrated through the Production Possibility Frontier (PPF/PPC): shows trade-offs between two products.

• Assumptions include limited goods, constant technology, and full resource employment.

Changes to the PPC

• PPC can shift due to:

  • New Technology: Increases production capacity and efficiency.

  • New Resources: Expands production capabilities.

  • Unemployment: Represents underutilized resources.

  • Concave Shape: Reflects increased opportunity costs for production shifts.

Production Types

• Consumer Goods: Immediate satisfaction for needs and wants (food, clothing).

• Capital Goods: Long-term production machinery/items that aid future goods (factories, roads).

Economic Decision-Making Factors

• Factors affecting personal decisions include income, lifestyle, future plans, and economic conditions.

• Businesses focus on profit via pricing strategies, cost efficiency, and labor relations.

Government Role

• Influences economic decisions through taxation, legislation, and spending.

• Redistribution of income via taxes and welfare impacts overall economy.

Chapter Summaries

• Chapter 1: Introduction to basic economic concepts of scarcity, supply, demand, and opportunity cost.

• Chapter 2: Examines production factors and their classifications (land, labor, capital, enterprise).

• Chapter 3: Discusses economic systems, including mixed economies and their government interventions.

• Economic Growth vs. Development: Economic growth indicated by GDP, while development measures overall welfare and quality of life improvements.