SECTION 1 – MICROECONOMICS
Chapter 1 : page 2
Chapter 2 : page 6
Chapter 3 : page 10
Chapter 4 : page
Chapter 5 : page 11
Chapter 6 : page
Chapter 7 : page
Chapter 8 : page
Chapter 9 : page
Chapter 10 : page
Chapter 11 : page
Chapter 12 : page
SECTION 1 – MICROECONOMICS
1. The foundations of economics
Economics – Social science, a study of people in society and how they interact with each other. A study of rationing systems, the study of how scarce resources are allocated to fulfill the infinite wants of consumers.
Scarcity, Choice, Opportunity cost
Economic good – Any good or service that has a price, and is thus being rationed. Opportunity cost – The next best alternative foregone when an economic decision is made (what you give up in order to have something else). Opportunity cost never expressed in monetary terms – it is what you go without. Good/service must be relatively scarce, so it will have a price and be classified as an “economic good”. Free goods – Not relatively scarce and so will not have a price, are infinite, do not have an opportunity cost when consumed (air, salt water).
Basic economic problem
¤ What should be produced and in what quantities?
¤ How should things be produced?
¤ Who should things be produced for?
Factors of production – Land, labour, capital, management (entrepreneurship) Capital – Comes from investment in physical and human capital. These have been accumulated through investment, usually by the government. Physical capital – The stock of manufactured resources (factories, machinery, roads, tools) that are used to produce goods and services in the economy. Human capital – The value of the workforce (education, health care) Infrastructure – Social overhead capital. The large-scale public systems, services, and facilities of a country used for economic activity. It includes stock of a nation’s roads, railways, telecommunications, etc. Improved infrastructure may lead to improved economic growth and development. Management – The organizing and risk-taking factor of production.
Production possibilities curves/frontiers – Used to show the concepts of scarcity, choice, opportunity cost, among other things. PPC – Shows the maximum combination of goods and services that can be produced by an economy in a given time period, if all the resources are being used fully and efficiently. This is known as potential output. Diagram – B is when workers are most productive. Inside the PPC, or X, not all the factors of production of the economy are being used or they are being used inefficiently. Y is unattainable for an economy as it is outside the PPC. It can only be achieved if the PPC itself moves outwards. Movement of the curve outwards would be an increase in potential output and movement from B to Y would then be potential growth. War/natural disasters could cause curve to move inwards.
Utility – A measure of usefulness/pleasure.
Total utility – The total satisfaction gained from consuming a certain quantity of product. Marginal utility – The extra utility gained from consuming one more unit of a product.
Microeconomics – Deal with smaller, discrete economic agents and their reactions to changing events. It looks at individual consumers and their decisions about demand, and expenditure. Individual firms and their decisions, individual industries and how government action affects them. Macroeconomics – Takes a wider view. It considers things such as measuring all the economic activity in the economy, inflation, unemployment, and the distribution of income in the whole economy.
Positive statement – One that may be proven to be right or wrong by looking at facts. Normative statement – A matter of opinion and cannot be conclusively proven to be right or wrong. Easily spotted – “ought”, “should”, “too much”, “too little”.
Economists and model building...