Economics and Geography Review Flashcards

Foundational Principles and Definition of Economics

• The Origins and Meaning of Economics: The term economics is derived from the ancient Greek word "oikonomia," which literally translates to the management of a family or a household. This indicates that the study originated in ancient Greece. Today, it is recognized as a branch of the social sciences that focuses on the efficient allocation of scarce resources to achieve maximum fulfillment of human needs.

• Economics as a Science of Choice: Because productive resources such as land, labour, equipment, and technical knowledge are finite (scarce), while human needs and wants are unlimited, economics is defined by the necessity of choice. The fundamental logic follows: Scarcity → Limited Resources → Limited Output → Unlimited Human Wants → Choice (which involves costs) → Opportunity Cost.

• The Nature of Economics:

  • As a Science: It comprises a systematic and organized body of knowledge. It links causes and effects by collecting, classifying, analyzing, and interpreting facts to make future predictions regarding "what is."

  • As an Art: It involves techniques and methods for achieving specific goals. It examines the nature and causes of economic problems (like unemployment or inflation) and sets procedures for finding solutions.

• Main Themes and Derivative Statements:

  1. Economics studies scarce resources.

  2. It focuses on the allocation of those resources.

  3. Resource allocation must be efficient.

  4. Human needs are unlimited.

Branches, Methods, and Approaches of Economic Study

• Major Branches of Economics:

  • Microeconomics: Concerned with the behaviour of individual decision-making units (households, firms, governments) and their interactions in specific markets and industries. Its central problem is associated with resource allocation or price determination. Examples: The price of teff, the income of a specific person (e.g., Aberash), or the saving of an individual (e.g., Chala).

  • Macroeconomics: Deals with the aggregate behaviour of an entire economy. it examines interrelations among variables such as total output, national income, general price levels, and employment. Its fundamental problem is associated with the full employment of economic resources. Examples: The $GDP$ of Ethiopia, or the general price level in the country.

• Comparison Matrix (Micro vs Macro):

  • Micro: Studies individual units; deals with specific prices/outputs; tools include demand/supply of specific commodities; helps solve "what, how, and for whom" to produce.

  • Macro: Studies the economy as a whole; deals with national income/output; tools include aggregate demand and aggregate supply; helps solve the problem of full resource employment.

• Methods of Logical Reasoning:

  • Deductive Method: Proceeds from the general to the particular. It involves reasoning from principles to specific facts. Example: "Man is mortal. Abebe is a man. Therefore, Abebe is mortal."

  • Inductive Method: Proceeds from a part to the whole (particular to general). It develops theories based on observations and comprehensive data collection. Example: Observing grain prices fall during harvest leads to the generalization that "Keeping other factors constant, an increase in supply leads to a fall in prices."

• Perspectives of Analysis:

  • Positive Economics: Concerns real facts and "what is/was/will be." Disagreements are cleared with reference to facts. Example: "The current inflation rate in Ethiopia is 12 \, \text{%}."

  • Normative Economics: Involves value judgments and "what ought to be." It is a matter of opinion that cannot be proved by facts, often resolved through voting. Example: "The government should introduce school feeding programmes in all schools."

Decision-Making Units and Circular Flow of Activity

• Economic Agents (Decision-Making Units):

  • Households: Chief owners of the factors of production (land, labour, capital, entrepreneurship). They sell "factor services" and receive income as rent, wages, interest, and profit. They spend income on goods and save the rest while paying taxes.

  • Business Firms (Producers): Hire factor services from households to produce commodities. They consist of both private and government enterprises.

  • Government (General Government): Purchases goods from firms and factor services from households to provide free services (police, education, medical, sanitation). Income is generated through direct and indirect taxes on households and firms.

• Circular Flow Models:

  • Real Flows: The movement of factor services from households to firms and goods/services from producers to buyers.

  • Money (Financial) Flows: The movement of factor payments (rent, wages, etc.) from firms to households and money expenditures for goods from households to firms.

  • Two-Sector Model: A private, closed economy involving only households and firms. Assumptions include: No government, no saving, no foreign trade.

  • Three-Sector Model: Includes households, firms, and the government. Government revenue is raised via taxes; government expenditure includes purchasing services/goods, providing subsidies to firms, and transfer payments to households.

Scarcity, Choice, and the Production Possibilities Frontier (PPF)

• Scarcity vs Shortage: Scarcity means the available amount is less than what people wish to have at zero price (a universal, endless problem). Shortage is a specific, short-term problem where people cannot get the amount they want at the prevailing price.

• Opportunity Cost: The amount or value of the next best alternative that must be sacrificed (forgone) to obtain one more unit of a product. It is measured in goods/services, not money.

• The Production Possibilities Frontier (PPF/PPC): A curve showing the possible combinations of goods/services a society can produce given its technology and resources.

  • Assumptions: Fixed resource quantity/quality, two broad output classes, full employment/production, constant technology, and specialization of inputs.

  • Dynamics: Points on the curve are attainable and efficient. Points inside are attainable but inefficient. Points outside are unattainable.

  • The Law of Increasing Opportunity Cost: As more of a product is produced, the opportunity cost per unit of additional output increases, making the PPF concave to the origin.

• Economic Growth: Represented by an outward shift of the PPF. Causes include increased resource quantity/quality or technological advances. Asymmetric growth occurs if productivity increases only in one sector.

Markets and Factor Payments

• Definition of Resources:

  • Free Resources: Amount available is greater than desire at zero price (e.g., sunshine, air).

  • Economic Resources: Amount available is less than human want at zero price.

• Categories of Economic Resources and Rewards:

  • Labour: Physical and mental effort. Reward: Wage.

  • Land: Natural resources/free gifts of nature. Reward: Rent.

  • Capital: Manufactured inputs (machinery, infrastructure). Reward: Interest.

  • Entrepreneurship: Talent for organizing/managing and taking risk. Reward: Profit.

• Types of Markets:

  • Goods and Services Market: Households buy consumables; firms sell end products.

  • Labour Market: Employees provide services; employers provide opportunities.

  • Financial Market: Trading of securities, currencies, bonds, and shares to provide capital formation/liquidity.

• Renewability of Resources:

  • Renewable: Potential to be replaced via natural processes (e.g., solar energy, wind, soil, trees). Note that soil formation may take hundreds of years.

  • Non-Renewable: Stock is limited or fixed (found in the ground). Supplies may be replenished through recycling, but the overall supply remains constant (e.g., natural gas, coal, oil, aluminum).

Introduction to Demand, Supply, and Market Equilibrium

• The Concept of Demand: Willingness and ability to buy a commodity at a given price and time. Effective demand requires ability to pay, willingness to pay, and availability of the good.

  • Law of Demand: Ceteris paribus, price and quantity demanded are inversely related. $Q_d = f(P)$.

• The Concept of Supply: The quantity producers are willing and able to offer for sale. Stock is potential supply; actual supply involves what is brought to the market.

  • Law of Supply: Ceteris paribus, there is a direct/positive relationship between price and quantity supplied. $Q_s = f(P)$.

• Market Equilibrium: A state of balance between opposing forces of demand and supply.

  • Equilibrium Price ($P_e$): The price where $Q_d = Q_s$.

  • Equilibrium Quantity ($Q_e$): The quantity bought and sold at the equilibrium price.

  • Market Mechanism: The tendency for the economy to move toward the equilibrium price when external forces are absent.

Theory of Production and Costs

• Production Periods:

  • Short Run: At least one input is fixed (e.g., building/machinery). Output is increased by varying inputs like labour.

  • Long Run: All inputs are variable. The size of the plant can be changed.

• Key Production Metrics (Short Run):

  • Total Product (TP): Entire output produced in terms of quantity ($Q$).

  • Average Product (AP): $AP_L = \frac{TP}{L}$, indicating labour productivity.

  • Marginal Product (MP): $MP_L = \frac{\Delta TP}{\Delta L}$. Extra output from one additional unit of variable input.

• Types of Costs:

  • Explicit Costs: Actual cash outlays made to outsiders for resources (Accounting Costs).

  • Implicit Costs: Values of non-purchased resources owned by the firm (e.g., owner’s salary, estimated rent of owned building).

  • Economic Cost: The sum of Implicit and Explicit costs.

  • Fixed Costs (TFC): Costs that do not vary with output (e.g., interest, administrative staff).

  • Variable Costs (TVC): Costs that change with output (e.g., raw materials, wages for production workers).

  • Total Cost (TC): $TC = TFC + TVC$.

  • Marginal Cost (MC): $MC = \frac{\Delta TC}{\Delta Q}$ or $MC = \frac{\Delta TVC}{\Delta Q}$.

Nature and Functions of Money

• Definition: Money is any good widely used and accepted in payment for goods/services or repayment of debts. Criteria for acceptance: Standardization, Acceptability, Divisibility, Portability, and Durability.

• Historical Evolution:

  • Barter: Direct exchange of goods for goods. Limitations: Lack of double coincidence of wants; lack of common measure of value; indivisibility of goods (e.g., a horse vs shoes); difficulty in storing wealth; difficulty in deferred payments.

  • Commodity Money: Axumite coins existed (King Endybis); later salt bars (Amole), cloth, and beads were used.

  • Metallic Money: Maria Theresa Thaler (minted in Vienna, 1751) used in Ethiopia until 1945. First national coins by Menelik II (1893) and later Haileselassie I (1933).

  • Paper Money: First issued by Bank of Abyssinia (1914), gained some acceptance by 1932 (Bank of Ethiopia). The national currency, the Birr, was issued in July 1945.

• Functions of Money:

  • Medium of Exchange: Eliminates the transaction cost of finding a "double coincidence of wants."

  • Unit of Account: Measures value; serves as a unit of measurement for pricing and rational economic calculation.

  • Store of Value: Repository of purchasing power over time. Related to liquidity (ease of conversion to medium of exchange).

  • Standard of Deferred Payments: Facilitates current purchases with future payments (credit/lending).

• Demand for Money (Keynesian Motives):

  • Transaction Motive: Income motive (households) and Business motive (entrepreneurs).

  • Precautionary Motive: Holding cash for unforeseen contingencies (accidents, sickness).

  • Speculative Motive: Holding liquid assets to take advantage of market movements/interest rate changes.

Macroeconomic Fundamentals and Variables

• Gross Domestic Product (GDP): Total market value of final goods/services produced within a country's boundaries in a given period (usually one year). $GDP = \sum P_i \times Q_i$. It excludes intermediate products.

• Gross National Product (GNP): Total value produced by domestically owned factors regardless of location. $GNP = GDP + NFI$.

• Per Capita Income (PCI): $PCI = \frac{GDP}{\text{Total Population}}$. It evaluates living standards.

• Macroeconomic Goals: Economic growth, full employment, price stability, stable balance of payment, and fair income/wealth distribution.

• Inflation: Sustained increase in the general price level.

  • Demand-Pull: "Too much money" chasing "too few goods"; aggregate demand exceeds productive capacity.

  • Cost-Push: Supply-side inflation due to decline in aggregate supply (e.g., bad weather, power breakdowns, higher input costs).

• Unemployment: Individuals who are employable and actively seeking a job but unable to find one. Age bracket: $15–64$.

  • Frictional: Temporary, due to job switching, entrance after graduation, or seasonality.

  • Structural: Mismatch between skills/locations and vacancies.

  • Cyclical: Caused by inadequate overall demand during a recession/depression.

  • Disguised: Productivity is low; redundant work with minimal to no productivity (common in agrarian/third world countries).

Entrepreneurship and Innovation

• Key Definitions:

  • Entrepreneur: One who creates and develops a business idea and takes the risk of setting up an enterprise. Notable Ethiopian examples: Bethlehem Tilahun Alemu (SoleRebels) and Haile Gebrselassie (Marathon Motors).

  • Entrepreneurship: The process of identifying market opportunities and arranging resources to exploit them for long-term gain.

• Creativity and Innovation:

  • Creativity: Ongoing process of generating/recombining ideas unexpectedly.

  • Innovation: Implementation of new ideas to exploit opportunities. Types: Invention (creation of new product); Expansion (growth of existing service); Duplication (replication); Synthesis (combining existing concepts).

• Entrepreneurial Mindset and Skills:

  • Attitudes: Passion, Bravery, Flexibility, Strong Work Ethics, and Integrity.

  • Management Skills: Strategy, Planning, Marketing, Financial tracking, Project management, and Time management.

  • People Skills: Communication, Leadership, Motivation, Delegation, and Negotiation.

• Schumpeter’s Creative Destruction: A force where innovation increases efficiency but may destroy established companies and reshape businesses.

• Finance Sources: Personal savings (entrepreneurs should provide at least 50 \, \text{%}), friends/family, partners, "Angels" (wealthy private investors), and Venture Capital firms (expecting high growth).

Geography of Ethiopia: Location, Size, and Shape

• Definition and Scope: Geography is the scientific study of the Earth analyzing spatial and temporal variations of physical and human phenomena. Scope includes: Hydrosphere (water), Biosphere (living organisms), Atmosphere (air), Lithosphere (rocks), and Anthroposphere (human-modified environment).

• Location of Ethiopia:

  • Absolute (Astronomical): Located between $3^{\circ}N – 15^{\circ}N$ latitudes and $33^{\circ}E – 48^{\circ}E$ longitudes.

  • Relative: Landlocked country surrounded by six neighbors. Boundaries: Somalia ($1,600 \, \text{km}$), South Sudan ($1,006 \, \text{km}$), Eritrea ($840 \, \text{km}$), Kenya ($760 \, \text{km}$), Sudan ($744 \, \text{km}$), and Djibouti ($310 \, \text{km}$).

• Size: $1,106,000 \, \text{km}^2$. Tenth largest in Africa.

• Shape: More or less compact (circular). Compactness indicators include the Boundary-circumference ratio ($B/C$). Ethiopia's $B/C$ ratio is $1.411$, indicating a 41 \, \text{%} deviation from a perfect theoretical circle.

Geological History and Topography of Ethiopia

• Geological Eras:

  • Precambrian: Oldest rocks (Basement complex/old crystalline rock). Outcrops found in central/northern Tigray, Abbay Gorge, and Borena.

  • Paleozoic: Major denudation/peneplanation. Formed residual features (inselbergs). No significant rock formation (gap in rock record).

  • Mesozoic: Era of sedimentary rock formation. Sea transgression (from SE to NW) deposited Adigrat sandstone (Triassic) and Hintalo limestone (Jurassic). Sea regression (NW to SE) deposited Upper Sandstone (Cretaceous).

  • Cenozoic: Rift Valley formation. Tertiary Period: Dome uplifting and Trappean lava series (Northwestern/Southeastern Highlands). Quaternary Period: Active volcanism (Ertalle), Afar Horst, and modern man evolution.

• Topographic Divisions:

  • Western Highlands: Includes Plateau of Tigray (Mt. Tsibet), North Central Massif (Mt. Ras Dashen – $4,620 \, \text{m}$), Plateau of Shewa (Mt. Abbuye Meda), and Southwestern Highlands (Mt. Gughe).

  • Southeastern Highlands: Includes Hararghe Plateau (Mt. Gara Muletta), Arsi Plateau (Mt. Kaka), Bale Massif (Mt. Tulu Dimtu – $4,377 \, \text{m}$), and Sidama Highlands.

  • Rift Valley System: Stretches $1,700 \, \text{km}$ in Ethiopia. Divisions: Afar Triangle (Kobar Sink – $116 \, \text{m}$ bmsl), Main Ethiopian Rift (Lakes region), and Chew-Bahir Rift.

Climate and Water Resources of Ethiopia

• Controls of Climate: Altitude is the main control of temperature in Ethiopia. Latitudinal location leads to high temperatures and small annual ranges.

• Agro-Climatic Zones:

  • Wurch (Alpine): >3,300 \, \text{m}. Temp <10^{\circ}C.

  • Dega (Temperate): $2,300 – 3,300 \, \text{m}$. Temp $10 – 15^{\circ}C$.

  • Woina Dega (Sub-tropical): $1,500 – 2,300 \, \text{m}$. Temp $15 – 20^{\circ}C$. (Major agricultural zone).

  • Kolla (Tropical): $500 – 1,500 \, \text{m}$. Temp $20 – 30^{\circ}C$.

  • Bereha (Desert): <500 \, \text{m}. Temp >30^{\circ}C.

• Drainage Systems:

  • Western (Mediterranean): Blue Nile/Abbay (Sobat in Sudan), Tekezze (Athbara in Sudan), Baro-Akobo. Largest discharge (60 \, \text{%}).

  • Southeastern (Indian Ocean): Wabe Shebelle (longest, does not reach sea), Genale (becomes Juba in Somalia). 32 \, \text{%} discharge.

  • Inland (Rift Valley): Awash (terminates in Lake Abbe), Omo-Gibe (terminates in Lake Turkana).

• Lakes:

  • Highland: Watershed (e.g., Tana – largest) and Crater (e.g., Haik, Wonchi).

  • Rift Valley: Shalla (deepest – $266 \, \text{m}$), Ziway (shallowest – $4 \, \text{m}$), Abijatta.

Population and Settlement in Ethiopia

• Demographics: Second most populous in Africa ($114.9$ million in 2020). Annual growth rate estimated at 2.6 \, \text{%}.

• Composition: Young-age population ($0–14$) is high; Age Dependency Ratio ($ADR$) is high ($76.8/100$ in 2020).

• Distribution: Uneven. 77.5 \, \text{%} of the population lives in highlands above $1,800 \, \text{m}$ because of moderate temperature and absence of malaria.

• Regional Densities: Highest in SNNPR ($173 \, \text{persons/km}^2$) and Amhara ($131.9 \, \text{persons/km}^2$). Lowest in Gambella and Somali.

• Languages: Afro-Asiatic Superfamily (Cushitic: Oromo, Somali, Sidama; Semitic: Amharic, Tigrigna, Gurage; Omotic: Wolaita) and Nilo-Saharan (Kunama, Gumuz, Nuer).

• Religion (2007 Census): Orthodox (43.5 \, \text{%}), Islam (33.9 \, \text{%}), Protestant (18.6 \, \text{%}), and Catholic (0.7 \, \text{%}).

• Settlements: Rural settlements (80 \, \text{%} of population) categorized as Permanent (highlands) and Temporary (nomadic lowlands). Urban settlements (20 \, \text{%}) identified by >2,000 people and non-agricultural activity.

Geographic Inquiry Skills and Techniques

• Map Components: Title, Scale, Direction (North arrow), Grid reference (Latitude/Longitude), Legend, Date, Place of Publication.

• Map Styles:

  • Small-scale: <1:250,000. Covers large areas with less detail.

  • Medium-scale: $1:50,000 – 1:250,000$.

  • Large-scale: >1:50,000. Covers small areas with high detail.

• Grid Systems:

  • Geographic Grid: Latitude/Longitude.

  • National Grid: Eastings (verticals) and Northings (horizontals). Four-digit (approximate) and Six-digit (accurate to $100 \, \text{m}$) references.

• North Points: True North (North Pole), Magnetic North (compass needle), and Grid North (Easting direction lines).

• Statistical Diagrams:

  • Line Graph: Shows changes over time.

  • Bar Graph: Comparisons between items/places.

  • Pie Chart: Sizes of parts in relation to a whole (100 \, \text{%} ($360^{\circ}$)).