Ecop Unit 1 What economics is all about.docx

[Economic Principles 101 Study Unit 1 - What economics is all about 1](#_Economic_Principles_101__Study_Unit_1__) [1. Every time 4](#every-time) [2. Purpose of this chapter: 4](#purpose-of-this-chapter) [2.1.1. What is economics about? 5](#what-is-economics-about) [2.1.2. Some pointers on economics to start with 5](#some-pointers-on-economics-to-start-with) [2.1.3. Macro- & Micro economics divided 5](#macro--micro-economics-divided) [2.1.4. Needs, wants & scarcity, opportunity cost 5](#needs-wants-scarcity-opportunity-cost) [2.1.5. The PPC/PPF and efficiency 6](#the-ppcppf-and-efficiency) [3. Let\'s begin... 6](#lets-begin.-.-.) [4. 1 So what is economics? 6](#so-what-is-economics) [4.1. Deals with CHOICES people make - in the use of scarce resources, to... 6](#deals-with-choices-people-make---in-the-use-of-scarce-resources-to.-.-.) [4.1.1. (i) satisfy unlimited wants (ii) explain, analyse growth, inflation etc. etc. 6](#i-satisfy-unlimited-wants-ii-explain-analyse-growth-inflation-etc.-etc.) [4.2. Relates to management of the household (for individual /micro; country or world/macro) - we are interested in micro for the most part 6](#relates-to-management-of-the-household-for-individual-micro-country-or-worldmacro---we-are-interested-in-micro-for-the-most-part) [4.2.1. Micro: individual parts; where decisions are made. We look at INDIVIDUAL (firm, household, product) 6](#micro-individual-parts-where-decisions-are-made.-we-look-at-individual-firm-household-product) [4.2.2. Macro: aggregate-, total- ; production, income, expenditure (=\"\"TOTAL\"\") 6](#macro-aggregate--total--production-income-expenditure-total) [4.3. The essence is unlimited wants served by limited means -- scarcity of resources leading to choices 6](#the-essence-is-unlimited-wants-served-by-limited-means-scarcity-of-resources-leading-to-choices) [4.3.1. \...and explaining such things as - economic growth, inflation, unemployment\... (p3) 6](#and-explaining-such-things-as---economic-growth-inflation-unemployment...-p3) [4.4. Terminology 6](#terminology) [4.4.1. Wants 6](#wants) [4.4.1.1. desires, unlimited, individual wants, collective wants as a group. 6](#desires-unlimited-individual-wants-collective-wants-as-a-group.) [4.4.2. Needs 6](#needs) [4.4.2.1. necessities; not regarded as unlimited =food, water, clothing, shelter 7](#necessities-not-regarded-as-unlimited-food-water-clothing-shelter) [4.4.2.1.1. Needs and Wants seen as one \> \"\"wants\"\" from here on 7](#needs-and-wants-seen-as-one-wants-from-here-on) [4.4.3. Demand 7](#demand) [4.4.3.1. \...having the means\... 7](#having-the-means...) [4.4.4. Scarcity 7](#scarcity) [4.4.4.1. - always a cost when a resource is used; - a little more later 7](#always-a-cost-when-a-resource-is-used---a-little-more-later) [4.4.5. Choice 7](#choice) [4.4.5.1. relates to opportunity costs - - the value of the next-best (or alternative) I did NOT take up 7](#relates-to-opportunity-costs-----the-value-of-the-next-best-or-alternative-i-did-not-take-up) [4.4.6. \"\"Resources in production\"\" 7](#resources-in-production) [4.4.6.1. = Factors of Production, being made up of 3 resources first... 7](#factors-of-production-being-made-up-of-3-resources-first.-.-.) [4.4.6.1.1. Natural resources -- land, forest, sea, minerals 7](#natural-resources-land-forest-sea-minerals) [4.4.6.1.2. Human resources - Labour -- human capital -- aimed at earning income from effort 7](#human-resources---labour-human-capital-aimed-at-earning-income-from-effort) [4.4.6.1.3. Man-made; Capital -- all manufactured resources -- machines, buildings; purpose to produce 7](#man-made-capital-all-manufactured-resources-machines-buildings-purpose-to-produce) [4.4.6.1.4. but to produce \> entrepreneurship as a 4th factor (and technology not a a separate factor, although NB) 7](#but-to-produce-entrepreneurship-as-a-4th-factor-and-technology-not-a-a-separate-factor-although-nb) [4.4.7. Inverse (negative) relationship 7](#inverse-negative-relationship) [4.4.8. Specialisation v Division of Labour 8](#specialisation-v-division-of-labour) [5. Points to remember about economics: 8](#points-to-remember-about-economics) [5.1. Economics is a structured way of looking at the world of business 8](#economics-is-a-structured-way-of-looking-at-the-world-of-business) [5.1.1. It\'s a Social Science... 8](#its-a-social-science.-.-.) [5.1.1.1. social = human behaviour science = to explain (patterns) predict (effects) policies 8](#social-human-behaviour-science-to-explain-patterns-predict-effects-policies) [5.1.2. The thing with \"\"ceteris paribus\"\" 8](#the-thing-with-ceteris-paribus) [5.1.2.1. a conditional law (we can\'t do lab tests) meaning we Δ one thing and all other factors remain the same 8](#a-conditional-law-we-cant-do-lab-tests-meaning-we-%CE%B4-one-thing-and-all-other-factors-remain-the-same) [5.2. Equilibrium - a state of balance (if only for a moment) equilibrium - no incentive to Δ 8](#equilibrium---a-state-of-balance-if-only-for-a-moment-equilibrium---no-incentive-to-%CE%B4) [5.3. Macro- and micro economics 8](#macro--and-micro-economics) [5.4. Watch for Static Analysis and Comparative Statistics - Static analysis - we look at something \"\"frozen in time\"\", or we apply comparative statistics (comparing) by doing static analysis (of a snapshot moment) 8](#watch-for-static-analysis-and-comparative-statistics---static-analysis---we-look-at-something-frozen-in-time-or-we-apply-comparative-statistics-comparing-by-doing-static-analysis-of-a-snapshot-moment) [5.5. \[Extra} Fallacy of composition: that which is true for the single is not nec. for the whole 8](#extra-fallacy-of-composition-that-which-is-true-for-the-single-is-not-nec.-for-the-whole) [5.5.2. = the whole is not always the sum of all the parts 9](#the-whole-is-not-always-the-sum-of-all-the-parts) [5.6. {Extra} (Statistical) Correlation and causation 9](#extra-statistical-correlation-and-causation) [5.6.1. some correlation between two variables does not imply one caused the other (\"\"correlation does not imply causation\"\")... 9](#some-correlation-between-two-variables-does-not-imply-one-caused-the-other-correlation-does-not-imply-causation.-.-.) [5.6.1.1. example - the \'danger of bowls\' 9](#example---the-danger-of-bowls) [5.7. \[Extra\] Levels and rates of Δ : a quick summary- 10](#extra-levels-and-rates-of-%CE%B4-a-quick-summary-) [5.7.2. The may have been high RATE of change, but the LEVEL (e.g. wages for waiters) may still be low. 10](#the-may-have-been-high-rate-of-change-but-the-level-e.g.-wages-for-waiters-may-still-be-low.) [5.7.3. Esp: - % increase and % decrease - percentage points and basis points - a large % of a small number is still small etc. 10](#esp---increase-and-decrease---percentage-points-and-basis-points---a-large-of-a-small-number-is-still-small-etc.) [6. 2 Scarcity 10](#scarcity-1) [6.1. Scarcity is NOT poverty. Rich and poor all have 24 hours in a day 10](#scarcity-is-not-poverty.-rich-and-poor-all-have-24-hours-in-a-day) [6.2. Resources are scarce; using them has a cost 10](#resources-are-scarce-using-them-has-a-cost) [6.2.1. This gives rise to OPPORTUNITY cost 11](#this-gives-rise-to-opportunity-cost) [6.2.1.1. Its - the value - of the best alternative - not chosen \'the value of the best forgone opportunity\' 11](#its---the-value---of-the-best-alternative---not-chosen-the-value-of-the-best-forgone-opportunity) [6.3. So OPP. Cost is not only the explicit (or accounting) cost, but also the implicit cost of the choice made 11](#so-opp.-cost-is-not-only-the-explicit-or-accounting-cost-but-also-the-implicit-cost-of-the-choice-made) [7. Goods: Check out the definitions of different types of - tangible - intangible goods in the SG Especially note the meaning of homogenous and heterogenous 11](#goods-check-out-the-definitions-of-different-types-of---tangible---intangible-goods-in-the-sg-especially-note-the-meaning-of-homogenous-and-heterogenous) [8. Talking about scarcity of resources - The scarcity things leads to.. The PPC! 11](#talking-about-scarcity-of-resources---the-scarcity-things-leads-to-.-.-the-ppc) [8.1. also called the PPF or PPB 11](#also-called-the-ppf-or-ppb) [8.1.1. We use 3 assumptions: \* only 2 goods/services \* same effort etc. to produce the next item \* technology is fixed and resources fully utilised 11](#we-use-3-assumptions-only-2-goodsservices-same-effort-etc.-to-produce-the-next-item-technology-is-fixed-and-resources-fully-utilised) [8.2. Why is this relevant to us? A technological revolution can cause the production-possibility frontier to shift outward and initiate economic growth! - like Henry Ford\' s assembly line 11](#why-is-this-relevant-to-us-a-technological-revolution-can-cause-the-production-possibility-frontier-to-shift-outward-and-initiate-economic-growth---like-henry-ford-s-assembly-line) [8.2.1.1. -corporatefinance.com 12](#corporatefinance.com) [8.3. - a shift of resources happens to produce more of one product/service - a shift in technological ability 13](#a-shift-of-resources-happens-to-produce-more-of-one-productservice---a-shift-in-technological-ability) [8.3.1. PPC 13](#ppc) [8.3.1.1. NOTE: - Moving up or down the curve requires a sacrifice; but not in equal amounts (reason for convex shape) - This means the opportunity cost increases along the curve - on the curve actual and potential output is equal - scarcity is shown by Y (unattainable) and opportunity costs by the negative slope 13](#note---moving-up-or-down-the-curve-requires-a-sacrifice-but-not-in-equal-amounts-reason-for-convex-shape---this-means-the-opportunity-cost-increases-along-the-curve---on-the-curve-actual-and-potential-output-is-equal---scarcity-is-shown-by-y-unattainable-and-opportunity-costs-by-the-negative-slope) [8.3.1.1.1. Better technology \> a Swing takes place 13](#better-technology-a-swing-takes-place) [8.4. Things to note: 14](#things-to-note) [8.4.1. - PPC indicates combinations of two goods, attainable when resources are FULLY & EFFICIENTLY employed - Illustrate problem of relative scarcity - Convex; note always a trade-off - Different production possibilities: Efficient Inefficient Unattainable - Used to illustrate scarcity, choice and opportunity cost - Why is the curve convex? - Which factors will cause such shifts? 14](#ppc-indicates-combinations-of-two-goods-attainable-when-resources-are-fully-efficiently-employed---illustrate-problem-of-relative-scarcity---convex-note-always-a-trade-off---different-production-possibilities-efficient-inefficient-unattainable---used-to-illustrate-scarcity-choice-and-opportunity-cost---why-is-the-curve-convex---which-factors-will-cause-such-shifts) [8.4.1.1. Further reading: https://www.thoughtco.com/the-production-possibilities-frontier-1147851 15](#further-reading-httpswww.thoughtco.comthe-production-possibilities-frontier-1147851) 1. [Every time](https://www.news24.com/fin24) ========================================== 2. Purpose of this chapter: ======================== 1. ![](media/image2.png) 1. ### What is economics about? 2. ### Some pointers on economics to start with 3. ### Macro- & Micro economics divided 4. ### Needs, wants & scarcity, opportunity cost 5. ### The PPC/PPF and efficiency 3. Let\'s begin... ================= 4. 1 So what is economics? ======================= 2. Deals with CHOICES people make - in the use of scarce resources, to... ------------------------------------------------------------------------ 6. ### (i) satisfy unlimited wants (ii) explain, analyse growth, inflation etc. etc. 3. Relates to management of the household (for individual /micro; country or world/macro) - we are interested in micro for the most part ------------------------------------------------------------------------------------------------------------------------------------- 7. ### Micro: individual parts; where decisions are made. We look at INDIVIDUAL (firm, household, product) 8. ### Macro: aggregate-, total- ; production, income, expenditure (=\"\"TOTAL\"\") 4. The essence is unlimited wants served by limited means -- scarcity of resources leading to choices -------------------------------------------------------------------------------------------------- 9. ### \...and explaining such things as - economic growth, inflation, unemployment\... (p3) 5. Terminology ----------- 10. ### Wants 1. #### desires, unlimited, individual wants, collective wants as a group. 11. ### Needs 2. #### necessities; not regarded as unlimited =food, water, clothing, shelter 1. ##### Needs and Wants seen as one \> \"\"wants\"\" from here on 12. ### Demand 3. #### \...having the means\... 13. ### Scarcity 4. #### - always a cost when a resource is used; - a little more later 14. ### Choice 5. #### relates to opportunity costs - - the value of the next-best (or alternative) I did NOT take up 15. ### \"\"Resources in production\"\" 6. #### = Factors of Production, being made up of 3 resources first... 2. ##### Natural resources -- land, forest, sea, minerals 3. ##### Human resources - Labour -- human capital -- aimed at earning income from effort 4. ##### Man-made; Capital -- all manufactured resources -- machines, buildings; purpose to produce 1. ###### Understand difference between capital as factor of production and capital = money 5. ##### but to produce \> entrepreneurship as a 4th factor (and technology not a a separate factor, although NB) 16. ### Inverse (negative) relationship 17. ### Specialisation v Division of Labour 5. Points to remember about economics: =================================== 6. Economics is a structured way of looking at the world of business ----------------------------------------------------------------- 18. ### It\'s a Social Science... 7. #### social = human behaviour science = to explain (patterns) predict (effects) policies 19. ### The thing with \"\"ceteris paribus\"\" 8. #### a conditional law (we can\'t do lab tests) meaning we Δ one thing and all other factors remain the same 7. Equilibrium - a state of balance (if only for a moment) equilibrium - no incentive to Δ --------------------------------------------------------------------------------------- 8. Macro- and micro economics -------------------------- 9. Watch for Static Analysis and Comparative Statistics - Static analysis - we look at something \"\"frozen in time\"\", or we apply comparative statistics (comparing) by doing static analysis (of a snapshot moment) -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 10. \[Extra} Fallacy of composition: that which is true for the single is not nec. for the whole -------------------------------------------------------------------------------------------- 20. ### ### = the whole is not always the sum of all the parts 11. {Extra} (Statistical) Correlation and causation ----------------------------------------------- 22. ### some correlation between two variables does not imply one caused the other (\"\"correlation does not imply causation\"\")... ![](media/image4.png) #### example - the \'danger of bowls\' #### ![](media/image6.jpeg) 12. \[Extra\] Levels and rates of Δ : a quick summary- -------------------------------------------------- 23. ### 24. ### The may have been high RATE of change, but the LEVEL (e.g. wages for waiters) may still be low. 25. ### Esp: - % increase and % decrease - percentage points and basis points - a large % of a small number is still small etc. 6. 2 Scarcity ========== 13. Scarcity is NOT poverty. Rich and poor all have 24 hours in a day ----------------------------------------------------------------- 14. Resources are scarce; using them has a cost ------------------------------------------- 26. ### This gives rise to OPPORTUNITY cost 11. #### Its - the value - of the best alternative - not chosen \'the value of the best forgone opportunity\' 15. So OPP. Cost is not only the explicit (or accounting) cost, but also the implicit cost of the choice made --------------------------------------------------------------------------------------------------------- 7. Goods: Check out the definitions of different types of - tangible - intangible goods in the SG Especially note the meaning of homogenous and heterogenous ========================================================================================================================================================= 8. Talking about scarcity of resources - The scarcity things leads to.. The PPC! =============================================================================== 16. also called the PPF or PPB -------------------------- 27. ### We use 3 assumptions: \* only 2 goods/services \* same effort etc. to produce the next item \* technology is fixed and resources fully utilised 17. Why is this relevant to us? A technological revolution can cause the production-possibility frontier to shift outward and initiate economic growth! - like Henry Ford\' s assembly line --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 28. ### ![](media/image8.png) #### -corporatefinance.com 18. - a shift of resources happens to produce more of one product/service - a shift in technological ability -------------------------------------------------------------------------------------------------------- 29. ### PPC ![](media/image10.png) 13. #### NOTE: - Moving up or down the curve requires a sacrifice; but not in equal amounts (reason for convex shape) - This means the opportunity cost increases along the curve - on the curve actual and potential output is equal - scarcity is shown by Y (unattainable) and opportunity costs by the negative slope 6. ##### Better technology \> a Swing takes place ###### Outward shift: more resources or better productivity = economic growth ![](media/image12.png) 1. The PPC shows potential output, but NOT what should be produced. 2. A shift of the curve outwards indicates economic growth 3. Question - what effect does food aid have? 19. Things to note: --------------- 30. ### - PPC indicates combinations of two goods, attainable when resources are FULLY & EFFICIENTLY employed - Illustrate problem of relative scarcity - Convex; note always a trade-off - Different production possibilities: Efficient Inefficient Unattainable - Used to illustrate scarcity, choice and opportunity cost - Why is the curve convex? - Which factors will cause such shifts? 14. #### Further reading: https://www.thoughtco.com/the-production-possibilities-frontier-1147851

Ecop Unit 1 What economics is all about.docx

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