Economics Basics

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Student Number: 186817
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Economics - 5189
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Total number of pages: 25
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Contents

Question NoPage No.

1.1Positive and normative economics3

1.2Economics models3

1.3Quantity and quantity demanded5

2.1Accounting and economic profit7

2.2Types of costs7

2.3Marginal revenue and marginal costs 7

2.4Quantity supplied vs. supply8

3.1Supply, Demand & Equilibrium9

3.2Elasticity of demand and elasticity of supply11

4.1Free market15

4.2Flaws associated with the free market15

4.3Measuring market competitiveness16

5.1Assumptions of perfectly competitive markets17

5.2Other types of market structures17

5.3Market regulation19

6.1Factors of production20

6.2South African Labor Market20

7.1Stimulating economic growth22

7.2Roles and characteristics of money22

7.3Money Creation23

Bibliography24

1.1 Positive and normative economic

Positive economics is based on facts, and deals with “what is”, rather than “what ought to be” (Friedman, M; 1970). On the other hand, normative economics deals with values and addresses what should be rather than what is. Normative statements often contain the prescriptive words “should” or “ought.” (Byrns R; 2011). It is basically someone’s opinion.

1.2 Economic models

Circular Flow Model
The circular flow model depicts how goods and services flow in exchange for money in the market economy. (Bized; 2012). The economy in made up of two main sectors, households and firms. Firms produce goods and services, to sell to households. But in order to make the goods and services they first need inputs or the factors of production; i.e. land, labor, capital & entrepreneurship. Households own or control these factors and sell them to the producers. (Regenesys Business School; 2012) This makes a giant rotating circle of income and spending as presented below: |

Fig.1.1 (Adapted from Biz/ed.1996-2012)

Factor markets refer to the interaction between buyers & sellers of factors of production, while goods markets refer to the...
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