Download Economics (Notes)

Economics
Needs: Items that an individual needs to survive e.g. food, shelter, clothing.
Wants: Items that an individual desires but does not necessarily need e.g. TV, big house.
Economics: The study of how scarce resources are used to produce the goods & services that people
need and want.
Opportunity cost: Choices lost as a result of a decision made.
Limited Resources: There are not enough resources to do all the things that need to be done
The Factors of Production
Factor
Explanation
Payment for its use
Land
All things supplied by nature
for producing goods e.g. land,
sea, mines, forests —> raw
materials are extracted from
the ground & turned into
finished goods.
Rent
Labour
People employed to produce a
good/provide a service —> any
productive human effort e.g.
block layer, hairdresser.
Wages
Capital
These are man-made objects
which help in further
production e.g. roads, factories,
machinery.
Interest
Enterprise
Someone who has a business
idea & is willing to take the risk
of setting up a business to
make a profit/seeing an
opportunity & investing in it e.g.
entrepreneur.
Profit
Economic Systems
Free Enterprise
Centrally-planned
Mixed Economy
• All resources are privately
owned.
• Government plays no role in
economic activity.
• USA
• All resources are publicly
owned
• Government controls all
economic activity
• China
• Some industries are
controlled by the government
while others are controlled by
private entrepreneurs.
• The government provides
schools, hospitals, etc.
• Ireland.
Economics
Economic Growth
The increase in the quantity of goods and services produced in an economy from one period to the
next.
Official measure: Gross National Product (GNP)
How can a country achieve economic growth?
• Keep interest rates & inflation down.
• Keep government borrowing down.
• Increase exports.
Advantages of economic growth:
• Higher standard of living.
• More employment created & workers will earn more.
• More tax revenue for the government.
• More money available to government to provide services.
• More goods and services will be available for consumption.
• There will be a decrease in the national debt as the government will have to borrow less money.
• Less emigration / increased immigration.
What is a recession?
A general slowdown in economic activity in an economy over a period of time.
• Economic productivity decreases.
• Unemployment rate increases.
• Household & business income fall.
Formula: Increase in production (GNP)
Last year’s production (GNP)
x 100
Inflation
A sustained increase in the general level of prices from one period of time to
another.
(Deflation is the opposite)
Official measure: Consumer Price Index (CPI).
Causes:
• When the costs of producing goods increases, the price of the goods will also increase.
• An increase in the taxes which affect price will cause prices to increase e.g. VAT, Excise Duties.
• If there is too much demand for goods and services and not enough supply, then prices will rise.
Benefits of a low inflation rate:
• There will be less demand by trade unions for wage increases.
• Irish goods/services being sold overseas (exports) may be more competitive.
• Businesses may find it easier to control costs —> goods can be produced cheaply, easier to sell
abroad.
• Foreign firms will be attracted to Ireland.
• Consumers may be encouraged to save more.
Formula - rate of inflation: Increase in price
Previous price
x 100
Economics
National Budgeting
• The national budget is a financial plan of the government’s expected future income & expenditure for
a period of time, usually a year.
• Prepared in Ireland by the Department of Finance.
Capital Expenditure: Non-recurring, once off expenditure on buying fixed assets which will have long
term benefits for the country e.g. building new schools, hospitals, airports, railway station
(infrastructure).
Current Expenditure: Spending on a regular basis for the day to day running of the country e.g. wages
of public servants, social welfare.
Current income for the government:
Income received by the government on a regular basis which is used to cover expenditure
• VAT (Value Added Tax - tax on goods/services)
• Income Tax (tax paid by all workers through PAYE system)
• Customs Duties (tax on goods coming into the country)
• Excise Duties (tax on certain goods produced in the country e.g. whiskey, cigarettes, beer)
• Corporation Tax (tax on the profits of companies paid to the government, 12.5% rate in Ireland).
• DIRT (Deposit Interest Retention Tax - tax on interest earned in a deposit A/C)
Capital income for the government:
Once-off income received by the government which is used for capital expenditure.
• Sale of state-owned companies to a private body (privatisation) e.g. Aer Lingus
• EU grants
National Debt:
The total amount of money that has been borrowed by the government over the years which interest
has to be paid on.
Debt servicing: Paying the interest on the National Debt.
How to prepare a National Budget
If you are asked to prepare a national budget…
• Use a title (e.g. National Budget 2017)
• Using the information provided in the question, draw up a list of income first & total it.
• Then, draw up a list of expenditure & total it.
• Take the total expenditure away from the total income.
• State whether the total is a surplus (more income than expenditure) or deficit (more expenditure
than income).
Example:
Economics
Importing
1. Visible imports: The purchase of physical products from other countries e.g. car, oil, fruit, coal.
2. Invisible imports: The purchase of a service from a foreign country e.g. oversea holidays, foreign
singers performing Ireland.
Why does Ireland import goods & services?
• Unsuitable climate to grow certain products e.g. oranges, bananas, tea.
• Does not have raw materials required for production e.g. oil, coal, steel.
• Certain countries have natural skills e.g. French wines.
• Irish consumers want variety.
Exporting
1. Visible exports: The sale of physical goods by Ireland to other countries e.g. dairy products, beef
and chocolates.
2. Invisible exports: The sale of services by Ireland to other countries e.g. tourists visiting Ireland,
Irish bands playing concerts overseas, providing financial services to other countries.
Why does Ireland export goods & services?
• To earn essential foreign money to pay for imports.
• If there is demand for Irish products abroad e.g. Kerrygold butter!
• Maintains jobs in Ireland.
• Ireland’s ability to export encourages foreign businesses to establish in Ireland.
What difficulties would Irish firms experience when exporting goods?
• Different languages.
• Different currencies.
• Transport & insurance costs.
• Regulations to be adhered to e.g. dress code.
What is the European Union (EU)?
• An organisation established with the aim of eliminating trade barriers between member states.
• 28 members (including UK)
• Free trade between members.
• Free movement of people between members.
• Provides a common currency.
Benefits of EU membership to Ireland:
• Access to a European market of 500 million people.
• EU finance for farmers, industry & infrastructure.
• Increased consumer choice - goods imported from EU.
• Irish people can work in any EU member state.
Economics
Currencies
Currency
Territory
Euro
France, Germany, Italy, Belgium, Netherlands,
Luxembourg, Greece, Spain, Austria, Portugal,
Finland, Cyprus, Estonia, Malta, Slovakia,
Slovenia.
Pound Sterling
UK
Sweden
Krona
Denmark
Krone
Rate of exchange
Euro —> foreign currency
MULTIPLY
Foreign currency —> euro
DIVIDE
Example:
John is going to a Beyoncé concert in America & wishes to convert €200 into US Dollars.
The ‘sell at’ rate is 2.60 & the ‘buy at’ rate is 2.74.
How many dollars will he get?
Use the ‘sell at’ rate —> €200 x 2.60 = $520
Use the ‘buy at’ rate (2.74) for his return home (converting dollars back to euros).
Balance of Trade
Formula: Visible Exports — Visible Imports
Visible exports > Visible Imports = a trade surplus
Visible exports < Visible Imports = a trade deficit.
Balance of Payments
Difference between all exports & imports of a country.
Formula: Total Exports — Total Imports
Total exports > Total Imports = surplus
Total exports < Total Imports = deficit