Economics for Business Summary
Economics for business by David Begg and Damian ward (3rd edition) chapters 1-8 Chapter 1: Economics for business.
1.1; What is economics? Economics is the social science that analyzes the production, the distribution and consumption of goods and services. It studies how individuals, firms, governments and economies deal with the problem of infinite wants and finite resources. Factors of production are the resources needed to make goods and services,: land, labor, capital and enterprise. - Land is where raw materials come from (e.g. oil, gas, base metals, wood etc.). - Labor is the ability to work. - Capital is composed by all the elements which take part in the production process (e.g. machinery, computers, offices, buildings etc.). - Enterprise is what brings land, labor and capital together and organizes them into business units that produce goods and services with the objective of making a profit. The production possibility frontier (PPF) is an important illustrative tool, showing the maximum number of products that can be produced by an economy with a given amount of resources. Figure 1 - PPF
Cars A C
75
Y
50 25 X
B
0
25
50
75
Computers
The PPF shows how resources are finite. The maximum production possibility for a give country is limited, and choices have to be made in order to decide what and how much to produce (How many cars and how many computers for example). At any point on the PPF curve, the country is employing all of its resources to produce the best mix of goods and services to fit its needs. At point X not all the 1
resources are employed, thus there is a margin of improvement in terms of total output. Point Y represents a level of output which is not available yet but which might be achieved in the future (when more resources will be available). Opportunity costs are the benefits foregone from choosing the next best alternative. As noticeable in figure 1, the country will have to choose whether to produce
1.1; What is economics? Economics is the social science that analyzes the production, the distribution and consumption of goods and services. It studies how individuals, firms, governments and economies deal with the problem of infinite wants and finite resources. Factors of production are the resources needed to make goods and services,: land, labor, capital and enterprise. - Land is where raw materials come from (e.g. oil, gas, base metals, wood etc.). - Labor is the ability to work. - Capital is composed by all the elements which take part in the production process (e.g. machinery, computers, offices, buildings etc.). - Enterprise is what brings land, labor and capital together and organizes them into business units that produce goods and services with the objective of making a profit. The production possibility frontier (PPF) is an important illustrative tool, showing the maximum number of products that can be produced by an economy with a given amount of resources. Figure 1 - PPF
Cars A C
75
Y
50 25 X
B
0
25
50
75
Computers
The PPF shows how resources are finite. The maximum production possibility for a give country is limited, and choices have to be made in order to decide what and how much to produce (How many cars and how many computers for example). At any point on the PPF curve, the country is employing all of its resources to produce the best mix of goods and services to fit its needs. At point X not all the 1
resources are employed, thus there is a margin of improvement in terms of total output. Point Y represents a level of output which is not available yet but which might be achieved in the future (when more resources will be available). Opportunity costs are the benefits foregone from choosing the next best alternative. As noticeable in figure 1, the country will have to choose whether to produce