Introduction to Economics

The Economic Problem

• Unlimited wants clash with limited resources, creating scarcity.
• Economics studies choices made to manage these limited resources.

The Three Basic Economic Questions

• What to produce? Deciding which goods and services to create (e.g., food, cars, technology).
• How to produce? Selecting the resources to use in production (labor, machines, land).
• For whom to produce? Determining who receives the produced goods and services (e.g., rich, poor, young, old).

Types of Resources

• Natural resources: Resources from nature (land, water, minerals, climate).
• Human resources:
  • Labor: People working to produce goods and services.
  • Enterprise: Business skills and risk-taking for production organization.
• Capital resources: Man-made tools and infrastructure (machines, factories, roads).

Micro vs. Macro Economics

• Microeconomics: Studies individuals, businesses, and specific markets, focusing on:
  • Consumer choices
  • Business decisions
  • Market prices
  • Supply and demand
  • Example: How petrol price increases affect car sales.
• Macroeconomics: Examines the entire economy (national or global), focusing on:
  • Economic growth
  • Inflation
  • Unemployment
  • Government policies
  • Example: How interest rate changes impact an economy.

Key Economic Concepts

• Economic Model: A simplified representation of reality to explain and forecast economic decisions.
• Ceteris Paribus: "All other things being equal." Focusing on one aspect at a time.
• Opportunity Cost: The value of the next best alternative forgone when a decision is made.
  • Example: Choosing a PlayStation means missing out on an Xbox.
• Positive Economics: Fact-based, testable; describes "what is" in the economy.
  • Example: Australia's unemployment rate is 5%.
• Normative Economics: Opinion-based, not testable; discusses "what should be" in the economy.
  • Example: The government should raise the minimum wage.

Economic Growth & Investment

• Higher capital investment (factories, technology, education) leads to faster economic growth.

Economic Systems

• Market Economy (Capitalism): Private businesses control the economy; prices determined by supply and demand (e.g., Australia, USA).
• Planned Economy (Socialism/Communism): Government controls production and distribution (e.g., North Korea, Cuba).
• Mixed Economy: Combines elements of private businesses and government control (e.g., Australia with public healthcare and private businesses).

Marginal Analysis

• Decisions based on comparing:
  • Marginal Benefits (MB): Extra gain from an action.
  • Marginal Costs (MC): Extra cost of an action.

Review Questions

• Scarcity: Limited resources, unlimited wants.
• Economic Good: A scarce good with a price.
• Business Risk Reward: Profit
• Inefficient Production (PPF): Inside production possibility frontier indicates wasted resources.
• Mixed Economy Indicator: Private and government involvement.