EconomicsEconomics

EconomicsEconomics

Social scienceSocial science EconomicsEconomics

The study how society chooses what to produce, who The study how society chooses what to produce, who to produce for and how much to produce.to produce for and how much to produce.

““Economics is the study of mankind in the ordinary Economics is the study of mankind in the ordinary business of life” – Alfred Marshallbusiness of life” – Alfred Marshall

““Economics is the study of how men and society Economics is the study of how men and society choose with or without the use of money to employ choose with or without the use of money to employ scarce productive resources to produce various scarce productive resources to produce various commodities over time and distribute them for commodities over time and distribute them for consumption, now and in the future, among various consumption, now and in the future, among various people and groups in society” – P.A.Samuelsonpeople and groups in society” – P.A.Samuelson

Ceteris paribusCeteris paribus

All other things remaining equalAll other things remaining equal

Micro and MacroMicro and Macro

MicroeconomicsMicroeconomics – The study of individual – The study of individual parts of the economy, such as individual parts of the economy, such as individual markets or firms.markets or firms.

MacroeconomicsMacroeconomics – The study of the whole – The study of the whole economy which deals with such things as economy which deals with such things as employment/unemployment, investment, employment/unemployment, investment, inflation, etc.inflation, etc.

Normative and positiveNormative and positive

NormativeNormative – These are matters of opinion which – These are matters of opinion which cannot be proved or disproved by reference to cannot be proved or disproved by reference to facts, since they are based on a value facts, since they are based on a value judgement. They are subjective and can be judgement. They are subjective and can be recognised by words such as “should” or recognised by words such as “should” or “ought”.“ought”.

PositivePositive – These are statements of fact that be – These are statements of fact that be checked against the facts and can be proved checked against the facts and can be proved correct or incorrect. They are not necessarily correct or incorrect. They are not necessarily true, but can be proved true or false.true, but can be proved true or false.

Normative and positiveNormative and positive

The world’s food supply should be shared The world’s food supply should be shared equally as there is enough to go roundequally as there is enough to go round

There is sufficient food in the world, and if There is sufficient food in the world, and if it was shared out equally then all people it was shared out equally then all people would have enough to eat. would have enough to eat.

Economic problemEconomic problem

Unlimited wants and

needs

Limited resources/factors

of production

Economic Problem• What to produce?• Who to produce for?• How much to produce?

Factors of productionFactors of production

LandLand LabourLabour CapitalCapital Management/EnterpreneurshipManagement/Enterpreneurship

Interest, rent, profit, wages

Opportunity costOpportunity cost As resources (factors of production) are As resources (factors of production) are

scarce we are required to make choices scarce we are required to make choices and sacrifice one thing to obtain another.and sacrifice one thing to obtain another.

The cost of a choice is know as the The cost of a choice is know as the Opportunity Cost.Opportunity Cost.

The cost of a choice in terms of the next The cost of a choice in terms of the next best opportunity forgone.best opportunity forgone.

Free and economic goodsFree and economic goods Economic goodsEconomic goods – these are goods that – these are goods that

have limited supply, i.e. they are scarce, have limited supply, i.e. they are scarce, so there needs to be some system for so there needs to be some system for allocating them.allocating them.

Free goodsFree goods – these are goods not created – these are goods not created from scarce resources and are available in from scarce resources and are available in abundance, and as a result there is no abundance, and as a result there is no need to have a system to allocate them.need to have a system to allocate them.

PPC / PPFPPC / PPF

Production possibility curve (ppc)Production possibility curve (ppc) Production possibility frontier (ppf)Production possibility frontier (ppf)

This is a way of representing the choices This is a way of representing the choices to society in the form of a diagramto society in the form of a diagram

PPC / PPFPPC / PPF