Economics Notes PDF

1\. Introduction to Economics Definition of Economics \- Economics: The study of how individuals and societies allocate scarce resources to satisfy unlimited wants. Key Concepts \- Scarcity: Resources are limited; wants are unlimited. \- Example: There is a finite amount of oil, but consumers...

1\. Introduction to Economics Definition of Economics \- Economics: The study of how individuals and societies allocate scarce resources to satisfy unlimited wants. Key Concepts \- Scarcity: Resources are limited; wants are unlimited. \- Example: There is a finite amount of oil, but consumers have a constant desire for fuel. \- Choice: Scarcity necessitates choices; making choices involves trade-offs. \- Opportunity Cost: The value of the next best alternative foregone. \- Example: If you spend money on a new phone, the opportunity cost is what you could have purchased with that money. 2\. The Economic Problem Factors of Production \- Land: Natural resources used to produce goods (e.g., minerals, forests). \- Labor: Human effort in production (e.g., workers in a factory). -Capital: Tools and machinery used in production (e.g., computers, factories). \- Entrepreneurship: The ability to combine resources and take risks to create new products or services. Production Possibility Curve (PPC) \- Definition: A graph that shows the maximum combinations of goods that can be produced with available resources. \- Example: If an economy can produce only cars and computers, the PPC shows the trade-offs between producing one versus the other. \- Shifts in the PPC: Economic growth (outward shift) can occur due to improved technology or an increase in resources. 3\. Demand and Supply Law of Demand \- Definition: As the price of a good decreases, the quantity demanded increases, and vice versa. \- Example: If the price of chocolate decreases, consumers will buy more chocolate. Demand Curve \- Visual Representation: A downward sloping curve showing the relationship between price and quantity demanded. Law of Supply \- Definition: As the price of a good increases, the quantity supplied increases, and vice versa. \- Example: If the price of oranges rises, farmers will supply more oranges. Supply Curve \- Visual Representation: An upward sloping curve showing the relationship between price and quantity supplied. Market Equilibrium \- Definition: The point where the quantity demanded equals the quantity supplied. \- Example: If the price of coffee is set too high, there will be a surplus, leading suppliers to lower prices. Shifts in Demand and Supply \- Factors Affecting Demand: Income, tastes, prices of related goods (substitutes and complements), and expectations. \- Example: If consumer incomes rise, demand for luxury cars will increase. \- Factors Affecting Supply: Production costs, technology, number of suppliers, and expectations. \- Example: An increase in the cost of raw materials can decrease supply. 4\. Market Structures a\) Perfect Competition \- Characteristics: Many firms, homogeneous products, price takers. \- Example: Agricultural products like wheat. b\) Monopolistic Competition \- Characteristics: Many firms, differentiated products, some control over price. \- Example: Restaurants and clothing brands. c\) Oligopoly \- Characteristics: Few firms, interdependent pricing, potential for collusion. \- Example: Airline companies. d\) Monopoly \- Characteristics: Single firm, significant price-setting power, barriers to entry. \- Example: Local utility companies. 6\. Government Intervention To correct market failures, redistribute income, and promote economic stability. Types of Intervention 1\. Taxes :Purpose To reduce negative externalities. Example: Taxes on cigarettes to discourage smoking. 2\. Subsidies: Purpose To encourage positive externalities. Example: Subsidies for renewable energy projects. 3\. RegulationS: Purpose to Enforce standards and protect consumers. Example: Environmental regulations on emissions. 4\. Price Controls \- Minimum Price (Price Floor): Prevents prices from falling below a certain level (e.g., minimum wage). \- Maximum Price (Price Ceiling): Prevents prices from rising above a certain level (e.g., rent controls). 9\. Development Economics Economic Development vs. Economic Growth \- Economic Development: Focuses on improvements in living standards, education, and health. \- Economic Growth: About increasing GDP. Challenges to Development: \- Poverty: Lack of access to resources and opportunities. -Inequality: Disparities in wealth and income distribution. \- Corruption: Erosion of trust and efficiency in governance.