Download STUDY UNIT 1 CHAPTER 1 WHAT IS ECONOMICS ALL ABOUT 1

STUDY UNIT 1
CHAPTER 1
WHAT IS ECONOMICS ALL ABOUT
1. INTRODUCTION
- Economics has to do with the srudy of how we use scarce resources to satisfy our unlimited wants.
- seeks to describe, explain, analyse and predict phenomena like economic growth, unemployment, inflation,
trade between individuals, and countries, prices of goods and services, poverty, wealth, money, interest rates,
exchange rates, business cycles.
1.1 Scarcity, choice and opportunity
 Scarcity (not enough goods/ services to satisfy everyones wants) must not be confused with poverty
 Wants: human desires for goods and services (biological, spiritual, material, cultural, social) they are
unlimited, but the means are scarce
 Needs: are essential thing we need for survival (food, water, shelter, clothing)
 Demand: when you have the authority (money) to get a service or good you can demand it,
purchasing power
3 types of resources:
 Natural
 Human
 Man-made

Opportunity cost is the value of the second choice we did not take. (measuring costs that we have
chosen in terms of the alternatives we sacrificed) this is the negative slope of the curve
Production possibilities curve (or frontier)
It indicates the combination of any two goods or services that are attainable when the community’s resources
are fully and efficiently employed.
Scarcity: all points outside Production Possibilities Curve
Choice: is on the curve
Opportunity cost: illustrated by negative slope of the curve
1.2 Economics as a science
Economics use systematical patterns to explain what happened, predict what is going to happen.
EMPIRICIAL SCIENCE: WE STUDY ACTUAL EXPERIENCES
MICROECONOMICS (INDIVIDUAL)
Focuses on individual parts, the decisions or functioning of decision makers such as
individual consumers etc. are studied. Also includes the study of demand supply and
prices of individual goods and services. e.g. households, firms, price formation, changes in prices of a single
product, e.g. tomatoes, pencils watches.
MACROECONOMICS (GROUPS)
Economy as a whole, Large - study economy as a whole e.g. inflation, unemployment, economic growth,
imports, exports
Study thing as in TOTAL production, ECONOMIC GROWTH things to do with the country as a whole.
Positive and normative economics
Positive: is a fact
Normative: is a opinion(should, ought must)
Economic Problem
Production factors
Natural resources – rent
Capital – interest
Labour – wages
Entrepreneurship – Profit
Technology
Products
Economic goods
Free goods
Ceteris Paribus- with other things the same or equal or held constant
Fallacy of composition- assume that the whole is always equal to the sum of the other parts
Blinkered approach (biased thinking)- economy tends to make simplified and biased diagnoses of economic
issues
Post hoc ergo propter hoc- when 2 events follow each other closely in time, people often assume that the
second event is the consequence of the first
Correlation and causation- same as post hoc, but correlation does not imply causation
LAW OF DEMAND
THAT THE QUANTITY
DEMANDED WILL
INCREASE IF THE PRICE
OF THE PRODUCT
DECREASES
Why do economist disagree?
 They make different value judgements
 Not agree on facts
 Might be biased
 Hold different views about how economy operates
 Different time perspectives
Levels and rates of change:
 Consumer price index measures level of price in country , we can calculate the rate of change of the
level to determine inflation rate
 Rate of increase usually expressed as percentage
Consumer price index increases from 200 to 220
220 − 200
=
𝑥 100
200
20
=
𝑥 100
200
2000
=
200
= 10