SSC 102 Compiled Notes PDF

SSC 102 COMPILED NOTES BEING NOTES COMPILED BY ISAAC MOSOPEFOLUWA OLUWAGBAMI known as Zikkish WITH THE HELP OF SEVERAL SOURCES INCLUDING PHARDZ (Economics Class Rep), Legit, Gold, Daniel and Titilayo (My colleagues) 15th April, 2024...

SSC 102 COMPILED NOTES BEING NOTES COMPILED BY ISAAC MOSOPEFOLUWA OLUWAGBAMI known as Zikkish WITH THE HELP OF SEVERAL SOURCES INCLUDING PHARDZ (Economics Class Rep), Legit, Gold, Daniel and Titilayo (My colleagues) 15th April, 2024 NATURE OF ECONOMICS Dr. Oladunjoye Opeyemi Nathaniel The nature of a discipline is reflected in its definition, our starting point therefore is to examine the definition of economics. The definition of Economics can be broadly divided into two, the first type of definition is related to wealth and material welfare while the second type of definition is related to scarcity of means. The classical Economists led by Adam Smith in 1776 defined Economics as a science of wealth other economist in the group include David Ricardo, Jean-Baptiste Say and Francis Amasa Walker. Each of these scholars and social thinkers cast their wealth based definition of economics as follows: 1. Adam Smith’s Definition : Economics is an inquiry into the nature and causes of the wealth of nations. According to this definition, Economics is a field of study which is concerned with the study of the factors that determines the wealth for a country and how this wealth grows over time. In this way Adam Smith emphasized the production and expansion of wealth as a subject matter of economics. 2. David Ricardo’s Definition: David Ricardo’s contribution to the definition of economics was to shift emphasis from the production of wealth to the distribution of wealth. This definition sees economics as the study of wealth on one hand and study of human behavior on another. It regards wealth as source of human welfare but does not regard it as an end in itself. 3. Alfred Marshall’s Definition: Alfred Marshall separated Economics from politics by using the term Economics rather than political economy. Alfred Marshall coined the term Economics from political economy. In his definition of Economics, Alfred Marshall elevated the study of Economics to the realm of science by removing political influences in the analysis of economic issues. Three things are noted from this definition;  Economics is the study of man’s behavior in relations to wealth Economics is a social science; the definition makes it clear than economics studies man’s life in the ordinary business of life. Economics aims at promoting social welfare i.e the end in economics is the attainment of wellbeing of the society. Despite the improvement to the definition of Economics contained in Alfred Marshall’s definition which made it widely acceptable for long, it suffered two main criticism pit forward by Lionel Robbins an English Economist. Criticism of Alfred Marshall’s Definition 1. Economics is not limited to material things. 2. Economics is concerned with scarcity and not welfare. Jean-Baptiste Say’s Definition : J.B Say defined Economics as the study of the laws which governs wealth. He looked at the ethical nature of the accumulation of wealth. F.A Walker’s Definition: Walker defined Economics as a body of a knowledge which relates to wealth Criticism on Wealth Based Definition of Economics 1. Emphasis on Materialism: Thomas Carlyle, an historian was one of those who referred to economics as a gospel of mammon on account of its elevation of wealth to an object of scientific study. 2. It ignores man’s behavior in relation to wealth. Lionel Robbins observed that nature has not provided mankind enough resources to satisfy all wants. This leads to the option of making choice of which wants or need and Economic agent has to satisfy at a point in time. The choice is necessitated by the fact that Economic agents such as individual households, business firms and government have unlimited wants but limited resources or means of satisfying these wants. Furthermore, the limited resources have alternative uses, thus, Economics is concerned with developing a systematically organized body of knowledge about rational choice making under the condition of scarcity. Therefore, Lionel Robbins scarcity definition of Economics is defined as follows; Economics is the sciences that studies human behavior as a relationship between ends and scarce means which have alternative uses. Five Basic Concepts from Scarcity Definition 1. Ends: This refers to the various human wants in the society. First, they are unlimited and secondly, they are of varying importance. 2. Scarcity: Given the enormity nature of human wants, the material needs to meet these wants are inadequate or limited. In other words, there’s a lack of  correspondence between human wants and the resources to satisfy them. In Economics we refer to this situation as scarcity. It is the scarcity of resources that manifest in the Economizing behavior of human beings. If there were no scarcity economic problems will not exist and there will not be economics as a discipline. 3. Scale of Preference: This refers to a table or list showing the various human wants arranged in order of importance. 4. Choice: Having arranged human wants on a scale of preference a decision would have to be made in choosing the most pressing and important needs of the economic agents. 5. Opportunity Cost: This refers to the worth the choice that was made by the economic agents in terms of the alternatives that was left unfulfilled or unsatisfied. The opportunity cost arises out of the fact that people faced trade- offs. Hence given up to get that item. Hence in any economic decisions we make, the worth is evaluated in terms of alternatives forgone. Monday 22nd April, 2024. Scope/ Territory / Area of Economics Dr Dada. The scope and method of economics Economics of scope are "efficiencies formed by variety, not volume" (the latter concept is "economies of scale"). In economics, "economies" is synonymous with cost savings and "scope" is synonymous with broadening production/services through diversified products. Economies of scope is an economic theory stating that average total cost of production decrease as a result of increasing the number of different goods produce Note: Human want are "insatiable" Branches Of Economics Micro economics- is a brach if economics that focuses on individual economic unit or economic agent (Household, firm, government). Macro economics- Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole This includes regional, national, and global economies example Inflation, unemployment, investment, International economics - International economics is concerned with the effects upon economic activity from international differences in productive resources and consumer preferences and the international institutions that affect them. It seeks to explain the patterns and consequences of transactions and interactions between the inhabitants of different countries, including trade, investment and transaction. It study interdependence among country of the world, factors that affect it and so on. Public Finance- Study the income and expenditure of government (State and Federal). They study the revenue of government. Public finance is the management of a country's revenue, expenditures, and debt load through various government and quasi-government institutions. Development economics- They concern about the growth and development of a particular area. Development economics is a branch of economics that deals with economic aspects of the development process in low- and middle- income countries. Its focus is not only on methods of promoting economic development, economic growth and structural change but also on improving the potential for the mass of the population, for example, through health, education and workplace conditions, whether through public or private channels Environmental economics- They study the environmental impact of economics activities on the environment. Environmental economics is the study of the cost-effective allocation, use, and protection of the world's natural resources. Health economics-.Health economics is a branch of economics concerned with issues related to efficiency, effectiveness, value and behavior in the production and consumption of health and healthcare. Health economics is important in determining how to improve health outcomes and lifestyle patterns through interactions between individuals, healthcare providers and clinical settings. Urban and rural economics- The study of the location decisions of households and firms with a special focus on housing, transportation, and local government. Industrial or business economics- Industrial Economics is the study of firms, industries, and markets. It looks at firms of all sizes – from local corner shops to multinational giants. And it considers a whole range of industries, such as electricity generation, car production, and restaurants. WHILE Business economics is a field in applied economics which uses economic theory and quantitative methods to analyze business enterprises and the factors contributing to the diversity of organizational structures and the relationships of firms with labor, capital and product markets.  NATURE OF ECONOMICS Economics as a SCIENCE --- Systematize body of knowledge- There is a systematic way of arrive at a low or conclusion. --- There are peculiar laws and theories to follow --- Testable Hypothesis --- Ability to make predictions --- Universal validity. Positive And Normative Economics Positive economics- deals with fact, What's is ? They are objecive in nature and not based on value judgement. They deal with what the economy "should be" or "ought to be". Examples; 1. legislations on minimum wage causes unemployment. 2. A fall in income will lead to rise in demand for canned supermarket food.  ECONOMIC SYSTEM The economic system comprises of individuals, firms and government (economic agent). It explains how resources are been shared or allocated in an economy amongst various Economic agent. This refers to the mode of production and distribution which takes place in an economy. Basic Economics problem 1. What to be produced? 2. How will it be produced? 3. To whom will it be produced? Types of Economics System A. Socialist Economic system: Command or planned economic system in which the means of production are owned and managed by the state. Private ownership of means of production is not allowed however individual can have personal property which is transferable. In socialist economy, economic activities are carried out mainly for social gain and not for personal Interest Characteristics of Socialist Economy 1. Means of production are owned by the state 2. Economic activity are planned by the central planning authority 3. Absence of competition 4. Equal opportunity for all. 5. No economic freedom for individual or the people. Advantages of Socialism 1. Social benefit: Promotion of the welfarism of the citizens 2. Rational allocation of resources 3. Full employment of Man Power. 4. Absence of anti-social activities Disadvantages of Socialism 1. No room for initiatives  2. Loss of economic freedom 3. Lack of incentive to work hard 4. There is cohesion and compulsion. 5. It’s against human nature. B. Capitalist Economic system It is that part of Economics System where the means of production are owned and managed by private individual and institution. This is an economic individualism where the individuals are the ones to decide what and how much to produce, production techniques to use, while the market forces of demand and supply (price mechanism) will distribute the goods and services produced. Characteristics 1. Freedom of enterprise 2. Self interest 3. Competition in the market 4. Economic freedom 5. Consumer sovereignty 6. Price mechanism Advantage 1. Reduction in the cost of production due to efficiency 2. Efficient control of the production system 4. Consumer choice is given full weight 5. Varieties of products. Disadvantages 1. Inequality in the description of National wealth. 2. Fluctuations in the level of employment 3. Class conflict 3. Capitals are spent on advertisements C. Mixed Economic system In a mixed economy how will the basic economic problems be answered? This is an economy system that comprises the system that contains the features of both capitalist and the socialist system. Advantages of Mixed Economy 1. The interest of people is well served 2. Adequate incentives to work hard. 3. Resources maybe properly utilised 4. Rapid development is possible Disadvantage of Mixed Economy 1. The concentration of wealth in few hands 2. Existence of anti- social activities 3. Wastage of resources. 4. The interest of the common man suffers  MICRO ECONOMIC PROBLEMS INFLATION Based on the O’level knowledge, inflation can be defined as the persistent increase in the general price level. But at the university level, it generally refers to the general increase in price overtime i.e. Money can buy lesser than it could before. There are different perspectives in defining inflation. These are: 1. Popular view of defining inflation 2. Modern view of defining inflation 3. Monetary view of defining inflation 4. Keynesian view of defining inflation. 1) Popular view of defining inflation. This view is held by scholars like Crowther, Gardner Hackney and H.E Johnson. The economists in this school of thought view inflation as a phenomenon of rising prices meaning that if the price of a loaf of bread increases from N800 to N11000 that would be considered inflation according to this school of thought. 2) Monetary View: The major scholars that belong o this school of thought are Friedman Coulbourne, Hourtney Keaver. These people view inflation as a result of excess liquidity in the economy relative to the limited goods and services. So, we have a case of too much money chasing few goods. This occurs when the government prints too much money to finance it’s purpose e.g. Budget deficit. 3) Keynesian View: This view propounded by economist called John Maynard Keynes. This view suggest that inflation is a result of excess demand over the available supply  Keynesian vs Classical models and policies – School of Economics 4) Modern View: The modern view categorizes inflation into two: 1. Demand-Pull Inflation: The demand-pull inflation occurs when there is an increase in demand for goods and services, this leads to corresponding increase in price. This occurs when people have more money to spend and they all want to buy the same product. The price of that product will go up. 2. Cost-push inflation: This inflation occurs as a result of an increase in cost of production. When the cost for running the factors of production e.g. Land, capital etc, then there have to be a commensurate increase in price of your final product and this increases in cost of production is passed on too consumers through higher prices. FEATURES OF INFLATION 1. It typically denotes a rise in price in the price level, i.e. inflation always leads to overall increase in price 2. Inflation is a monetary phenomenon. This means that inflation’s primary cause is the excessive supply of money tin the economy 3. Inflation is seen as n economic ystemand is as a result of the interaction of the economic forces of demand and supply  4. Inflation is also a dynamic process, and is seen as an ongoing process and it is in a continuum. You can look at how prices have increased over a period of time 5. Inflation is also a dynamic process, and is seen as an ongoing process and it is in a continuum. You can look at how prices have increased over a period 6. Inflation can simply be categorized into demand pull or Cost-puh; Inflation can be caused by either excessive demand (demand pull) or by increase a cost of production which is the cost-push inflation TYPES OF INFLATION Inflation can be classified into different types based on scope or parameters.These parameters are: a) Speed b) Scope c) Time d) Inducement e) Government reaction f) Employment. Classification of Inflation based on speed: This looks at the rate or velocity by which inflation is moving. Some of these are: Creeping Inflation: This is a mild form of inflation with a GRADUAL increase in prices. This could be a 2% annual increase in price. Walking Inflation: when prices rise more noticeably compared to creeping inflation, typically around 5% annual increment. Running Inflation: Prices rise faster in this form of inflation, it is around 10% annually. Galloping/Hyper-inflation: This is the extreme stage of inflation, with prices skyrocketing, very moment and no upper limit to it. For example Germany in post world war II.  CLASSIFICATION BASED ON INDUCEMENT Wage Induced inflation: This occurs when prices rise due to wage increase higher wage rate without a corresponding increase in the level of productivity, leading to increase in production cost. The announcement effect of wage increase. Profit Induced inflation: This occurs when a monopoly increase in the price level in order to increase it’s profit merging. The monopoly dictates the prices because they are the price matters. Scarcity Induced Inflation: This type of inflation occurs when the supply of goods is limited due to natural disasters or other factors. There are so many things that can cause scarcity induced inflation e.g. drought limited supply, artificial scarcity created by the black market/ Hoarding. Deficit Induced inflation: This occurs when government create new money to cover budget deficits. There are different ways to finance budget deficit: Seigniorage: This means printing excess amount of money for a budget deficit to finance government spending and when government prints the money without a commensurate level of productivity then their would be inflation CLASSIFICATION BASED ON TIME Peace Time Inflation: This is when prices rises during normal periods, this could be de to increase in government expenditure/spending. War time Inflation: This occurs during the period of war. There is always an increase in defense spending which might be unproductive and a huge chunk of the budget to execute the war, but this amount of money of money are the amounts that government needs to channels to viable sectors  Post-War Inflation: After war, the government will spend more to revive the economy and too much of the government spending will lead to increase in economics demands. Especially if here’s decrease in economic activities for two consecutive quarters. Increase in government spending can lead to inflation. CLASSIFICATION OF INFLATION BASED ON SCOPE 1. Comprehensive inflation: This has to do with when the prices of all goods and services increases through to economy meaning an increase in the general price level 2. Sporadic Inflation: It is sector specific. This is when inflation does not exceed a specific sector. E.g. in cases of natural disaster, famine, insurgency war. CLASSIFICATION ON GOVERNMENT REACTIONS Open Inflation: This occurs when government allows the prices of goods and services to go up without taking any measures to control them and allows the factors of demand and supply to take preeminence. Suppressed Inflation: This is when the government intervenes and there is a price ceiling set. CLASSIFICATION BASED ON EMPLOYMENT LEVEL Partial Inflation: This occurs when money supply increases causing prices to go up but at the same time more jobs are created and more goods and services are producers. Under this category of inflation there are some inflation, but they also lead to more economic activity and employment opportunities Full inflation: This occurs when the economy reaches full employment as such, further increases in the money supply will not create more jobs or boost production, instead prices  keep rising but the overall level of employment and output remains the same. It is a case where resources are used optimally. CAUSES OF INFLATION The causes of inflation will be looked at from two dimensions; a. There is increase in demand for good and services b. There is decrease in supply of goods and services Increase in Demand for Goods and Services this is caused by; 1. More money available in the economy: People have more purchasing power, which leads to higher demand for goods and services 2. When government spend more money on developmental budgets and welfare activities. It decreases the overall demand for goods and services 3. Tax reduction: when taxes are reduced, people have money to spend more money for goods and services 4. Rapid population growth can lead to more consumption and demand for goods and services which can cause inflation Decrease in Supply of Goods and Services There are some things that can cause the decrease in the supply of goods and services. Some of these are; 1. Shortage of factors of production e.g. Land, Labor and capital which leads to the reduction in the production of goods and services and subsequent increase in price. 2. Period of Shortages and Rising Prices: During times of shortages and rising prices, some traders may hoard to sell at high prices at a later period, causing scarcity and price increase. 3. Trade Union Activities: Trade union activities such as industrial actions called strikes can disrupt production and result in higher prices when trade union secure higher wages above the level of productivity, it raises production cost leading to higher prices 4. Natural Calamities or Disasters can reduce production some of these calamities like flood and droughts can reduce production leading to loss of goods and services 5. During periods of war, resources are diverted to the production of war materials, reducing supply of good and services for civilian consumption thereby causing inflation. The moderate inflation can be beneficial because it increases their profit margin or profit expectation but hyper inflation creates a form of uncertainty in the economy and is not beneficial anyone in the economy. EFFECTS OF INFLATION The inflation encourages hoarding and speculative activities It reduces the volume of production It can also affect distribution. It leads to redistribution between the rich and the poor It benefits the flexible income groups relative to the fixed income groups (pensioners) The debtors benefits while the creditors suffer because they receive less in terms of goods and services The wages earns typically suffer as well especially When salary does not increase quickly to match up the increase in the price level Pensioners, interest earners are also affected due to the fact that lender become remains fixed despite the increase in price level Inflation can cause social consequences such as conflict It can also result into moral consequences. It can encourage unethical moral practices such as black marketing, hoarding and other activities in the shadow economy Inflation can lead to discontent and loss of faith in the government and this can lead to political instability  CONTROL OF INFLATION 1. Monetary policy 2. Fiscal policy 1. This is a tool used by the central bank or the apex monetary authority of any country to control the supply of money. Monetary Policy Tools ❖ Monetary Policy Rate: They can increase the rate at which they lend to the commercial banks. Central bank is the banker’s bank. When the Central Bank increase the particular rate, it is called Contractionary Monetary Rate. This step is to reduce the amount of money in circulation. ❖ Sale of Government Security through Open Market Operation: They will sell government security to the bank and thebanks has to pay for this security. This security. Therefor this will deplete the aount of cash reserves i.e. the amount of loans they can give out to their customers ❖ The Central Bank can also require the commercial banks to keep a larger resource with them (Every Commercial bank have a revenue with the central banks). They increase the minimum reserve ratio so that banks will have money to give out as loans. ❖ Government also can engage in price sealing or control on essential goods. 2. Fiscal Policy: Deals with how government control its spending through taxes. ❖ Increase in taxation will also led to decrement in disposable income. ❖ Government can also reduce the public expenditures. ❖ Government can also control his resources on finances deficit e.g Minting of currencies. Deficit means when spending is more than resources when their available. And to achieve this, government can borrow, can control the production of money in central bank.  Others controls that government can implement. 1. Direct control on prices. 2. Rationality-setting quotas for certain goods. This is used when essential goods are scarce and it deals with the numbers of the goods that an individual can have. Other Measures Reallocation of resources from luxury goods to essential goods Government can regulate the wages and can tie their wages to the productivity of the workers Government can invent effective planning family programmes-Population control. This prevents excess demands especially in a populated country.  UNEMPLOYMENT This is a state of being without a job. An unemployed person is part of the labour force in cases where these persons are actively looking for Job. Categories of Population Category 1: This contains the employed people within the working age (15-65 years) during a particular period Category 2: Unemployed people but within the working age and are actively looking for job within a particular period Category 3: Within the working age range that are not part of the labor force. They are neither employed nor seeking for employment Category 4: Outside the working age range or those that are excluded from the previous categories. Based on this, the unemployment rate is calculated by dividing the total of unemployed (category 2) by the total labor force by the total labor force (categories 1-4) multiplied by 100 Unemployment rate = Total number of Unemployed 100 ----------------------------------------- × --------- Total Labor Force 1 Types of Unemployment 1. Structural Unemployment: This occurs when there is a mismatch between the skill acquired and the skill required by the employer 2. Cyclical Unemployment: This is caused by fluctuations in the level economic activities (e.g. Recession, economic expansion, negative growth) which is known as business cyclicality (this can be positive or negative) 3. National Unemployment: This occurs when there is ongoing transitional from one job to another 4. Seasonal Unemployment: This is specific to some firms like Tom-Tom business, agricultural businesses. Weather also affects tourism businesses. 5. Residual Unemployment: When you are unable to work due to some disabilities. CAUSES OF UNEMPLOYMENT 1. Rapid population growth: This is when there is high birth rate and two mortality rate 2. Dependence on Foreign Technologies: This is from the view that machine takes away your job 3. Rural-Urban Income inferential: If there is wide gap between the income rate of urban and rural area will lead to the influx of people in Urban areas and this will lead to urban unemployment because a lot of people will move there 4. A Defective Education System: a focused more on white collar jobs rather than practical skills that is needed for catching up to the needs of the industry. EFFECTS OF UNEMPLOYMENT 1. It can affect national output and standard of living 2. Financial struggle, poverty, low quality of life 3. Financial burden on Government: It can constitute a strain on Federal government resources: Government 4. will have to reduce tax reserves and introduce a lot of welfare packages 5. Social Consequences like mental health issues social isolation, stress, etc 6. Political Implications: For instances, high unemployment can lead to public dissatisfaction against that particular government.  MEASURES TO REDUCE UNEMPLOYMENT 1. Population control 2. Labor Intensive technique: Encouraging industries to accommodate more workers 3. Discouraging urbanization by creating public investment in rural areas 4. Educational Restructuring: When there is variation in time of trainings, entrepreneurial skills etc. CONCEPTS IN UNEMPLOYMENT 1. Full-Employment 2. National Rate of Unemployment 3. Labor Force Participation Rate This occurs when about 95% of the labor force iis fully employed with the remaining 5% considered functionally unemployed. It typically represents efficient use of all available resources in the economy 4. This is determined by compared available jobs with unemployed workers in the economy. It represents the unemployment rate when the economy is producing operating at full employment output 5. Labor Force Participation Rate: is the percentage of the adult population that is part of labor force (unemployed or employed). It excludes individuals under 15 years and in the military. Labor force participation increases whenmore people enter the force and decreases when people exit. The Phillip’s Curve This explain the relationship between inflation and unemployment. In 1958, A.W Phillips discovered an important relation between unemployment and wage changes, which later expanded to include inflation. This relationship we know is described and better explained as the Phillip’s curve. It shows a inverse relationship between unemployment and wage rates tend to fall slowly because workers are not willing to work for much less than the prevailing wage. Conversely, when unemployment is low wage rate rise quickly as employers compete for the few available workers. During period of rising business activities, demand for labor increases leading to lower unemployment and higher wages. During period of declining business activities, demand for labor decreases leading to higher employment and reluctance from employers to increase wages. Due to that reluctancy and union resorts to wage cuts and such employes will end up dismissing workers, increasing unemployment. At the vertical axis on the Phillip’s curve represents percentage change in money wage rate. The horizontal axis represents the rate of unemployment. The Phillip’s curve further expended to incorporate inflation. The curve suggests a trade of between unemployment and inflation. According to this is curve, lower unemployment can be achieved by accepting higher inflation and higher unemployment typically accompanies lower inflation. If the initial unemployment rate I at 6.5% and the inflation rate is at 8%  and the target rate if unemployment is at the 4% and that of inflation rate is 5%. This implies that if policy makers want to reduce unemployment from 6.5% to 4% the target state/rate, they prepare for the inflation rate to rise from 5%. Conversely, if they want to maintain an inflation rate of 5%, they would expect an increase in unemployment rate of 6.5%. Why is there an inverse relationship between unemployment and inflation: When unemployment is low, is typically indicates that more people are employed and actively participating in the economy, this increase demand for labor, can lead to higher wages as employes compete for workers. Higher wages on translate into increase consumer’s spending driving up demand for goods and services. Businesses may respond by raising to capture higher profits. Additionally, low unemployment rate can lead to cost-push inflation. As businesses compete for limited pool of workers, they may need to offer higher wages to attract and retain employers. This higher labor cost be passed on to consumers informs of higher prices of goods and services. The Phillip’s curve also reflects expectations and adaptive behavior in the economy. It individuals and businesses expect inflation to rise due to low unemployment, they can adjust their behavior accordingly