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Microeconomics: the choices consumers and producers make in response to the changes in the dynamic world
a. Examines how producers and firms make decisions to improve efficiency
b. Examines how producers and firms make decisions to improve efficiency
c. considers individual industries to see how producers interact with each other and how government intervention may affect producers
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Macroeconomics: focuses on the factors affecting the economy as a whole, such as economic growth and the way well being is being maintained by economic growth.
a. Looks at the way income is distributed in an economy (inflation, deflation, unemployment).
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Why does the government intervene in markets and in economies?
In terms of microeconomics:
a. To make sure the products meet a certain standard
b. To encourage sustainability
c. To prevent large firms from abusing their ability to influence markets
In terms of macroeconomics:
a. To encourage businesses to produce more to increase gross national income
b. To encourage businesses to produce more to increase gross national income
c. Reduce levels of unemployment
d. Improve economic well-being of workers
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9 central concepts of Economics:
Tip: These central key concepts are to be used in the IA, and are the main focal point of the Economics syllabus, understand them well
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Four factors of production:
Land: includes all the resources provided by nature that are used to produce goods. Also known as “natural capital”
Labour: includes all the human resources used in producing goods. Also known as “human capital”
Capital: includes buildings, offices, factories, machines, tools, infrastructure and tech to produce goods and services. Also known as “physical capital”
Entrepreneurship (management): organising and risk taking factor of production. Entrepreneurship organise land, labour, and capital to produce goods and services
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Production possibilities curve (PPC): Is a curve that represents all possible combinations of goods/services in a country using the available resources. Represented by a simple model which conveys two goods or services at any given time
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Due to scarcity, the economy cannot produce enough agricultural goods due to the lack of resources. All the points beyond the PPC curve are unattainable given the current resources and state of technology
A choice has to be made between the outputs competing for the economy’s resources. A choice have to be made as to which combination of output is to be produced using which resources
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Productive efficiency: when the economy is using all of its resources to the fullest extent possible
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A straight line PPC indicates constant opportunity costs
A concave PPC indicates increasing opportunity costs
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Circulation of money in the economy:
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The three leakages:
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Gross national income (GNI): amount of money in circular flow
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Planned Economy: decisions as to what to produce, how to produce, and for whom, are made by the government
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Free market economy: all production is in private hands and demand and supply are left free to set wages and prices in the economy
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