Introductory Economics

• Economics refers to the study of effective allocation of scarce resources within a society

• Resources are things used for production of finsihed goods/can satisfy our needs and wants

• Scarcity refers to a mismatch b/w unlimted needs and limited means to satisfy them. It’s the basic economic problem

• Limited means (Land, Labour, Capital, Entreprenuership) Unlimited wants (food, clothing, shelter, medicine, childrem, entertainment etc)

• Scarcity gives rise to 3 economic questions (concerning distribution of resources)- What to produce, How to produce, for whom to produce

• Economic Systems are means by which govts organise and distribute resources, thus solving the 3 questions.

• 4 types of such systems

  → Traditional : based on barter system, influenced by beliefs and rituals, eventually evolves into consumer economy

  → Command economy: govt makes all economic decsisions

  → Market Economy: no govt control, driven by consumers

  → Mixed: aspects of both market and consumer economy

• 2 Major fields within economics

→ Macroeconomics- Study of economy as a whole (Concerns aspects such as GDP, Inflation, Employment, Aggregate demand)

→ Microeconomics- Study of how Individual actors make decisions about scarce resources (Decisions made by families, firms, hospitals)

• Positive and normative statements in econ

  → Normative- Based on opinions and ethics , is subjective (e.g; Women should be granted paid period l leaves)

  → Positive- Objective statements that can be tested with the scientific method to deduce a true-false

result (e.g; when supply increases demand falls, based on facts)

• Factors of production are the inputs used in production of goods and services;

→ Land - Natural resources used in production (farming land, minerals, rocks)

→ Labour - Human input/the workforce (Artist, Nurse, Mason, Carpenter, Teacher)

→ Capital - Assets to be used in prodcution of other stuff (tractor used for farming, cloth used for making garments i.e, tangible human-made objects {physical capital} or Human knowldege {also known as human capital} such as factory equipment

→ Entreprenuers- Organisers of the four sectors, they combine the factors of production to generate output

• Opportunity cost: cost of next best alternative. ( i.e, What you’re missing out on to obtain smth)

• Production possibilities frontier: A graph to represent the possible combinations of two goods being produced when all resources are used efficently.

  → Points on the slope represent efficent resource use

  → Points outside the slope are not possible

  → Points inside the slope represent inefficent use of resources

  → The slope may move inwards or outwards with changes in land/labour/technology