Intro to Economics PDF
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This document provides an introductory overview of economic concepts. It defines economics and explains the economic problem, including the factors of production. The document also discusses the concepts of scarcity and choice and explores how decisions are made in economics.
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Intro to Economics What is Economics? conomics are decisions that ve people make every day that makes us interact with others E (government, Business and organizations). A big part of Economics are, Labour, Landand capital(Physical things not money). To understandEconomics we use...
Intro to Economics What is Economics? conomics are decisions that ve people make every day that makes us interact with others E (government, Business and organizations). A big part of Economics are, Labour, Landand capital(Physical things not money). To understandEconomics we use two important concepts, Household and firm. Households are the individuals for example my family that lives under one roof is one household. Firme is the word that describes the organization that buys factors and uses them to create a product or service. The amount of buying and selling that takes place represent the level ofeconomic activity.It is the household and the firms that exchange things with each other over different geographic areas that together creates the economic system. The Economic Problem In our economy we need to face three questions first, what goods and services should be produced? Secondly, how should these goods and services be produced? And lastly, who should get the goods and services that have been produced?. To answer these questions we need to look at the disposal which are classified as land, Labour and Capital. Landis the natural resources that we can take fromthe earth.This can be minerals such as iron, gold, oil and gas. ect. Labourin this case is the human effort (both mentaland physical) that goes into the production.For example a worker in a factory whoproduces tools, or an investment bank, a teacher, an unpaid carer ect. These are allin the concept of Labour. capitalmeans the equipment and structure that areused to produce a product and services.Capital goods include machinery in factories,buildings, and cooking ovens. capital is anything where the good is not used for its own sake but for the contribution it makes to production. ut it is important to know that the answer to the questions can be different depending on B which flavor you use for example: 1. Keynesian economics 2. Neoclassical economics 3. Behavioral economics 4. ‘Heterodox’ economics (political, feminist, marxist ect.) Scarcity and choice e often assume that the resources that the earth has given us are unlimited but that's W wrong. Resources have a limit and it doesn't matter if it is about time, money or Labour. The household can not meet all theneeds(the things thatwe need to survive as a human like food, water, clothing) andwants(the things we don’t necessary need bet we want to have them, it makes our life more enjoyable and comfortable, like a smartphone, activities like football, ect.) However, we have limited resourceswhich leads to us being unable to produce all the goods and services that the household demands, and this is calledScarcity (The limited nature of society’s resources). The householdcannot give every member the things they want because of this limited recourse and the same goes to the society, they cannot give every individual the highest standard of living. And this creates tension between our wants and needs and scarcity decisions must be made by the household and firms on how to allocate our income and resources to meet the wants and the needs in the household or the firm. Definition There is two different definition that describes the concept “economics” 1. ‘Economics is the study of how society makes choices in managing its scarce resources and the consequences of this decision-making.” 2. Economics is the science that studies the choices that individuals, Business make as they cope with scarcity and the incentives that influence those choices.” How people makes decisions ecisions can happen on different levels like Microeconomics that focus on the study of D individual decision makers making decisions or it can happen on a bigger level like macroeconomics that focus on the study of larger groups of decision makers for example counties. But unfortunately the different decisions will lead to disagreements that we call Trade-off(the loss of the benefits from a decisionto forego or sacrifice one option, balance against the benefit incurred from the choice made).When we are about to make a decision we need to consider what the benefits are from choosing one course of action. to get one thing we like usually means we need to give up another thing that we might also like. and therefore decision making requires trading of the benefit of one action against the other alternative. Political Economy Generalisations ave a more focus on a group level rather than the individual and we can take help of the 4 H c’s 1. Context- tells us how economic action incurse/interact 2. Collective behavior- actions resulting from groupinfluence or membership 3. Conflicting interest- Group goals where one groupwill gain something and the other will lose. 4. Change- instability created by conflicting interests. Summary of chapter 1 K ey issues arising in individual decision - making are that people face trade-offs among alternative goals, that the cost of any action is measured in terms of foregone opportunities, that rational people make decisions by comparing marginal cost and marginal benefit, and that people change their behavior in response to the incentives they face. When economic agents interact with each other, the resulting trade can be mutually beneficial. In capitalist economic system, the market mechanism is the primary way in which the questions of what to produce, how to produce and who should get the resulting output are answered. Markets do not always give outcomes that are efficient or equitable. In such circumstances, governments can potentially improve market outcomes. The field of economics is divided into two subfields: microeconomics and macroeconomics. Microeconomists study decision-making by households and firms and the interaction among households and firms in the marketplace. Macroeconomists study the forces and trends that affect the economy as a whole. The fundamental lesson about the economy as a whole are that productivity is a key source of living standards and that money growth can be a primary source of inflation. Production possibilities and opportunity cost veryday factories produce products and services in the EU that are valued at up to 12 E billion euro. But as everything else the service and product are limited, we cannot produce everything as we said earlier, sometimes we need to choose the next best alternative and give up the other. This is called opportunity cost. In the market the companies make decisions everyday on which product to increase and which they need to decrease in order to get a higher value. This is called Trade-off, when you increase one product and need to decrease another. To understand this easier we take help of the Production possibilities frontier (ppf) that is a boundary between the things that can be produced at the things that cannot. To give an example we will look at pizza and cola: The table lists some possible combinations that can be produced between pizzas and colas. The ppf illustrates Scarcity because the points outside the frontier are unattainable. Which means that you cannot produce 5 million pizzas and 15 million colas. But, you can produce everything that goes inside the ppf model because that is attainable. For example you can produce 5 million cols and 4 millions pizzas. This shows clearly that you need the opportunity cost to decide what has more value and what can we reduce in the production. ‘1 Possibility Pizzas (millions) Cola (millions) A 0 15 B 1 14 C 2 12 D 3 9 E 4 5 F 5 0 Production efficiency e can achieve Production efficiency when we produce goods and services at the lowest W cost. this will occur at all points on the ppf. If the point is inside the ppf the production is inefficient because we then are giving up more than we need to. For example at point Z, we produce 3 million pizzas and 5 million colas but we have enough resources to produce 3 million pizzas and 9 million colas which means that we are giving up 4 million cans of colas. we get the lower cost if we produce more colas because of the cost of the pizzas that costs more than producing colas. resources are unused when we don’t use the production efficiency which will lead to some of the factories machines will go idle or some workers unemployed. Trade-off along the PPF e discussed that trade-off was when you choose between the two best things and you W needed to give up one of those, and every choice along the PPF involved a trade-off because you need to choose one of the two things. At any given time we have a fixed amount of labour, land and capital. Of Course you can employ these resources to produce more but, we are still limited in what we can produce. For example when doctors say that we need to put more time on AIDS and cancer they do a trade off: they trade one medical research for less of something else. or when you want a higher mark on the next exam you do a trade off, where you choose to study more instead of sleep or leisure. All trade-offs involves a cost - an opportunity cost. Opportunity cost he opportunity cost is an action of the highest-valued alternative forgone. The importance is T that there are only two goods and you need to choose one of the two goods. and this can be helpt with PPF that shows us what we can do to not give up resources. For example if we look at the pizzas, we produce an additional 1 million pizzas but that means that we need to reduce the production of cola cans by 3 million. The additional 1 million pizzas cost 3 million colas or 1 pizza cost 3 cans of cola.
