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149 lines
7.0 KiB
Markdown
149 lines
7.0 KiB
Markdown
---
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title: Introduction to Economics
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enableToc: false
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---
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[Go back](Economics/Economics.md)
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### Macro-economics vs Micro-economics
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- Macro-economics and Micro-economics are 2 of the largest subdivisions of the study of economics
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- Micro- refers to the observation of small economics units
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- Effects of government regulations on individual markets and consumer decision making
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- Macro- refers to the “big picture” version of economics
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- How interest rates are determined
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- Why some economics grow faster than others
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### Micro-economics
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- Individual markets
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- Consumers
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- Producers/firrms
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- Government
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- How their actions influence decisions and individual markets
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- Utility maximisation/satisfaction
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- Firm production and profit maximisation
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- Individual market equilibrium
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- Effects of government regulations on individual markets
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- Externalities and other side effects
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### Macro-economics
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- The big picture
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- Focuses on aggregate production and consumption in an economy
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- Effects of general taxes such as income and sales taxes on output and prices
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- Causes of economics upswings and downturns
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- Effects of monetary and fiscal policies on economics health
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- Effects of, and process for, determining interest rates
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- Causes for some economies growing faster than other economies
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- Uses GDP **(**Gross Domestic Product: monetary value of all finished goods and services within a give time period**)** and goods and services by their market price
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- Inflation, unemployment rate, GDP
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### Scarcity
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- We have unlimited wants and limited resources to satisfy those wwants
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- There is a scarcity of resources
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- Resources have alternative uses
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### Basic Economic Problem (BEP)
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- BEP is every and affects us all
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- Due to the problem of “relative scarcity”
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- Scarcity relative to our wants
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- Resources may be abundant but wants are unlimited, how are the resources allocated: relative scarcity
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- Due to scarcity, we are forced to make choices
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- Resources cannot be used for all human wants
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- We must choose
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- ****************************************We have unlimited wants, but there is a scarcity of resources to satisfy those wants. Therefore, a choice must be made.****************************************
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### Opportunity Cost
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- When a choice is made, it involves a sacrifice known as an opportunity cost
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- ********************************************************************************Real cost of the next best alternative forgone******************************************************************************** based on a choice or decision
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- Usually measured in terms of goods/services or monetary value given up (relative to the alternative course of action)
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### Possibility Production Frontier (PPF)
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- Model that demonstrates how opportunity costs arise when individuals or the community makes choices
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- Shows the various combinations of 2 alternative products that can be produced
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- Assuming that:
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- Technology is constant/fixed
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- There is a fixed quantity of resources
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- All resources are used to their fullest capacity
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- Economy can only produce 2 goods/services
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- Points inside the curve are inefficient: resources are not being used to their fullest extent
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- Points on the curve are attainable, and resources have been used to their fullest extent
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- Points outside the curve are desirable but unattainable, as we have a scarcity of resources, and our technology is fixed, so we cannot achieve those points
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## Free Goods and Economic Goods
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### Free Goods
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- Free good is any good that is not scarce
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- Therefore has no opportunity cost
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- Not limited by scarcity
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- Therefore, it includes anything that can be obtained without sacrificing something else
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- E.g., sunlight
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### Economics Goods
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- Any good that is scarce, either because it is a naturally occuring scarce resource:
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- Oil
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- Gold
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- Coal
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- Forests/wood
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- Lakes/water
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- OR because it is produced by scarce resources
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- All economic goods have an opportunity cost lower than 0
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- ************************2 types of goods that are available free of charge but which do have opportunity costs and are therefore economic goods************************
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- Goods provided by the government (paid by tax-payer’s money)
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- Certain natural resources that are not owned by anyone are called common pool resources
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- Also considered economic goods because they are scarce, and are becoming increasingly scarce due to overuse and depletion
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- E.g., clean air, wildlife, lakes, forests, rivers
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************************************************************************************************************************************************************A good can be a free good in certain situations and an economic good in others************************************************************************************************************************************************************
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- E.g., oxygen out in the countryside is a free good, but in a crowded room, it becomes an economic good
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********************************************************************************************************************************************************Important to distinguish free goods from goods that are available free of charge to their users********************************************************************************************************************************************************
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## Basic Economic Questions
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- All economies/countries face scarce resources and unlimited wants
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- Decisions have to be made regarding the use of resources
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- So an economy has to have a system to answer the 4 basic economic questions
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- What to produce?
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- How to produce?
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- How much to produce?
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- For whom to produce?
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- Given unlimited wants, but scarce resources, so a choice must be made
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## Positive and Normative Concepts
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- Economists think about the economic world in 2 ways
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- 1 way tries to explain how things in the economy actually work
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- Positive Concepts
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- Based on facts/models
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- The other deals with how things ought to work
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- Normative Concepts
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- Based on opinions
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### Positive Concepts
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- Positive statements can be true or false
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- Based on facts and models
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- Describes how things actually work in the economy
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### Normative Concepts
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- Normative statements can only be assessed relative to values, opinions, and judgements
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- Cannot be true or false
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## 4 Factors of Production (FOP)
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- **********Land:********** Natural resources
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- ************Labour************: Physical or mental effort used to produce goods/services
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- **************Capital**************: Artificial **FOP** used to produce goods and services. Goods that make other goods/services
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- Physical capital: investment goods
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- Investment: spending on capital goods
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- ********Enterprise********: Skill used to organise all other **FOP** |