Economics Preliminary Topic One - Introduction to Economics.pdf

Preliminary Topic One – Introducton to Economics The Nature of Economics:  Economics is the study of how we solve the economic problem. The economic problem is how we satisfy our unlimited wants with our limited supply. - Scarcity is the economic problem - Resource...

Preliminary Topic One – Introducton to Economics The Nature of Economics:  Economics is the study of how we solve the economic problem. The economic problem is how we satisfy our unlimited wants with our limited supply. - Scarcity is the economic problem - Resources are the inputs that are used in the production and supply of goods and services (factors of production)  Since we cannot satisfy all our wants with the limited resources available, we must choose and prioritize between them.  Opportunity cost is the cost of not following the option not chosen. A graph which shows opportunity cost and represents what an economy can produce at a point in time is the Production Possibility Frontier: - PPF assumptions:  straight line shows resources are transferrable between 2 goods  curved line represents that resources aren’t completely transferable  the factors of production are working at full capacity  technology is fixed  only have 2 options of goods - PPF analysis: 1  Preliminary Topic One – Introducton to Economics - The middle curve shows the opportunity cost of maximum production. - Any point inside the PPF represents the factors of productions not working at full capacity. - Any point outside the PPF shows a growth in production caused by:  New technology from capital  Found new sources of natural resources(e.g open new mines)  Hire more people or train employees increasing the quality or quantity of labor output.  Economic choices made by individuals, businesses and governments now, will affect the future. An economy can choose between Producing consumer goods Producing capital goods - e.g. food, furniture, clothes - e.g. technology, machinery - This will satisfying immediate - That will increase productive consumer demand(current capacity for the future. increasing wants) long term growth and satisfaction  Economic factors underlying decision-making by: - Individuals – spending, saving, work, education, retirement, voting and participation in the political process, age, gender, personality - Businesses – pricing, production, resource use, industrial relations, demand. - Governments – influencing the decisions of individuals and business, global alliances, voter wants, election topics. The Operation of an Economy:  Factors of Production are any resource that can be used in the production and supply of goods and services Factors of Production Return 2  Preliminary Topic One – Introducton to Economics Natural resources- trees,oil,land rent Labour resources- workers income Capital resources-machinery interest Entrepreneurial skill- the ability to use the other factors of profit production to produce output  provision of employment and quality of life through the business cycle Contractions Expansions - falling production(output) - rising production(output) - rising unemployment - falling unemployment - falling wage rates - wage rise - interest rates eventually fall - interest rates can rise - inflation rates may fall(prices go up) - inflation rates can rise - decreased consumer spending - increased consumer spending - The Trend line, illustrates the long term growth trend that the economy follows in order to stay sustainable. Government intervention may be needed to bring the economic fluctuations as close to the trend line as possible to minimize the economic impacts that will result in either too much growth or no growth at all. - Growth domestic product ($) is the total goods and sources produced inside a country - GINI is the income inequality, its shown on a scale form 0-1. 0 representing the same income by everyone and 1 representing that 1 person holds all the wealth. - Welfare is income given by government - Allocative efficiency is when resources are allocated according to consumer demand. - HDI- quality of life GDP growth Recession Time 3  Preliminary Topic One – Introducton to Economics Equilibrium: when S+T+M=I+G+X Imports: when good comes in and money goes out Economies: their similarities and differences 4  Preliminary Topic One – Introducton to Economics  Types of economies: Free market economy Mixed economy Planned economy - little to no gooeerneent - soee gooeerneent - higoh gooeerneent control ineoleeeent control as the - forces of supply and deeand public sector: gooeerneent owns and eoee freely - aeailable to all operates the factos of - indieiduals own and operate - educatonn, healthcare productons the factors of producton - gooeerneent controlled - ego CHINA Advantages: private sector: - reeoees gooeerneent - owned by indieidual corrupton - fee for sereices - consueer soeereigonty Disadvantages: ego AUSTRALIA - higoh fuctuatons in business cycle - huean rigohts issues and basic needs unprotected(ego food prices haee no lieit) examine similarities and differences between Australia and at least one economy in Asia in relation to: 1 economic growth and the quality of life 2 employment and unemployment 3 distribution of income 4 environmental sustainability 5 the role of government in health care, education and social welfare. Explain 2 ways in which an economy operating within its production possibility frontier could achieve full employment of its rsources. To achieve full employment means that all available resources are engaged in the production of the goods an services. one way to achieve this is to train employees so that they are producing the goods in a higher quality because they work faster and to their full capacity. Another way to achieve full employment of resources is by upgrading technology so its more reliable an will ensure that technology malfunctory occurs less, thus achieving full employment of its resources. Explain how the discovery of new resources and imporvemnts in technology could affect the goods in an economy. form PPF 5  Preliminary Topic One – Introducton to Economics this new resources and improvenments in technology will shift the curve outwards increasing overall production. Explain why imports are a leakage and why exports are an injection Imports are a good or service being brought into the country. A leakage is the money going out of the economy, to pay for the imports. Therefore, an import is a leakage because the money is going out of the economy. On the other hand, an export is a good or service being taken out of the country. An injection is money coming into the country to pay for the good or service being exported. Therefore, an export is an injection as money is going into the economy to pay for the good. 6