Nature of Economics - 3. Future implications of choices

Nature of Economics - 3. Future implications of choices

• Economic choices can affect the future. People can choose to produce to Consumer Goods to satisfy individual and community needs and wants immediately.

• Alternatively, Capital Goods can be produced to be used as production of other goods and services. Hence, can satisfy individual and community needs and wants in the future.

• Hence, there is a trade off or opportunity cost.

• The ultimate aim of the choice: achieving efficiency (maximising returns with limited resources).

An economy that focuses more on Capital Goods can increase its productivity and hence, experience higher level of economic growth.

This concept can apply at 3 different levels:

1. Individual: choosing to save or spend their income.

2. Business: choose to produce some goods and services and not others; choose to distribute profit or retain for future investment.

3. Government: choose between the priority in budget spending of immediate needs (e.g. welfare benefits) against the future (e.g. infrastructure, education).

To Individuals, Businesses (firms) & the Government, there are different factors which affect their choices.

1. Individuals / consumers:

• Income (Y), Consumptions (C) & Savings (S). With given income, it is either spending or saving. Hence, the level of Y will affect C & S.

• Work: The type of work will affect Y. Y = C + S

• Education: forgo income in the present to learn new skills, hence, increase Y in the future.

• Retirement or starting a family: might reduce income and hence reduce expenditure.

1. Businesses: different factors affecting their choices include:

• Choosing the optimal price to charge customers to maximise profit.

• Minimise cost vs maintaining quality

• Capital (e.g. machines, equipment) & labour use

• Laws & regulations (e.g. industrial relations) which can affect its operations.

1. Government:

• Government policies & legislations can affect Consumers & Businesses. E.g. GST, COVID restrictions

• Penalties or prohibiting certain activities

• Incentives to encourage certain activities (e.g. tax rebate of 37% of private health insurance payment to low income earners, scientific research)

• Budget expenditure (e.g. infrastructure, education, health)

• Progressive Tax System