Chapter 1 – The General Principles of Economics
1. The basis of the economising problem is that society’s wants are unlimited and its economic resources are scarce or limited. This gives rise to the idea of opportunity cost which is defined as the amount of other products that must be forgone to obtain a unit of a product.
2. We study economics so that we can make well informed conclusions about public policies. Knowledge of economics is also important for making fundamental business decisions. This explains why a large companies employ economists to interpret economic data so they can make informed economic decisions.
3. Economists classify productive resources into four types: land, capital, labour, and entrepreneurial ability. The payments to these factors are, respectively, rent, interest, wages and profit.
4. The concept of scarcity gives rise to the economising problem, which involves five questions: a) How much total output is to be produced?
b) What combination of outputs is to be produced?
c) How are the outputs to be produced?
d) Who is to receive and consume these outputs?
e) How can the system accommodate changes?
5. Inductive method is a process whereby facts are collected and systematically analysed. It involves moving from the answer to the general and results in the development of answer. The deductive or hypothetical method is used by economists as a way of providing a answer to explain human behaviour. This framework is open to systematic answer through the examination of relevant answer. Deduction emphasises that facts are usually meaningless without answer.
6. The ‘other things being equal to’ or answer assumption allows economists to investigate the impact of answer variable while keeping the impact of answer variables answer. This is the economist’s counterpart to the answer experiment used in the physical answer
7. Macroeconomics is concerned with problems that relate to the answer as a whole or to large answer within it. Household, answer, answer and foreign sectors are decision groups that are important in the study of macroeconomics. Macroeconomic theories focus mainly on the problem of answer and answer but also embrace issues such as economic answer and the balance of answer.
8. Microeconomics is about the behaviour of firms, industries and answer when they act as independent answer. Microeconomics focuses on an analysis of markets which explain how answer and are determined. These in turn determine the allocation of answer to those markets.
9. Positive economics is concerned with statements of answer. It deals with what answer, was or answer be. Positive statements can be answer. When economists use answer judgements, they are said to use answer economics. It concentrates om outcomes that answer to be.
10. Bias is an example of one of the answer in objective thinking. It entails an adherence to answer beliefs, which impedes answer thinking. Emotive language may also distort analysis when loaded answer is used. Another pitfall occurs when something that is asserted as true for the part is also passed as truce for the answer. This is called a anser of composition.
11. The fact that Christmas cards are associated with Christmas every year is grounds for believing that the two are answer but does not prove that Christmas cards answer Christmas. Related to this is the post hoc, ergo propter hoc answer. If you believed this, then you would argue that Christmas is caused by Christmas cards because it is answer by them.
12. Two conditions need to be satisfied if society is to maximise its production and hence operate answer its answer curve: full answer and full answer, which implies answer efficiency and answer efficiency.
13. The production possibilities curve is based on four assumptions: a) the economy is operating at full answer and production
b) fixed answer
c) fixed answer
d) two answer
14. Points on the production possibilities answer or answer represent the answer production attainable given society’s answer resources. Points outside the production possibilities curve are answer because society has answer resources. Points inside the production possibilities curve represent less than answer production and therefore suggest that the economy has answer resources.
15. The production possibilities curve is usually answer to the origin. This indicates that in wishing to produce more of one good, society has to forgo answer amounts of the other. This implies increasing answer costs and occurs because resources are increasingly answer adaptable to different uses.
16. In essence if we envisage society as being able to produce only two types of output, namely consumer goods and capital goods, then producing fewer answer goods in the present will imply more answer goods and an increase in answer growth in the future. This implies answer output of all types in the future. We can represent growth as an answer shift of the production possibilities curve.