Economics – the efficient use of:
Scarce finite resources for the attainment of the maxiumum possible satisfaction of societys collective needs.

Micro-economics – Concerned with specific economic units and detailed consideration of the behavior of these individual units

Macro-economics – Deals with thte economy as a whole, or with the basic subdivisions or aggregates that make up an economy

Scarce Resources
Property resources
Land
Raw materials
Capital
Human resources
Labour
Entrepreneurial ability

Land
Land is an economic resource which includes all the natural resources that go into the production of goods and services
Income received by land is rent

Capital
All the manufactured aids to production used to produces goods and services and distribute them to the final consumer without directly satisfying human wants
The process of producing and accumulating these capital goods is known as investment
Payment for capital is interest

Labour
All human physical and mental talents that can be used in producing goods and services
Income accruing to labour is wage * *
Entrepreneurial Ability
A specialized form of human resource
Involves the combining of other resources to produce a product, make non-routine decisions, innovate an bear risk
Profit is the reward for entrepreneurship

The Economic Perspective
Scarcity and choice
Choice must be exercise because resources have multiple uses but their supply is finite or scarce
Rational behavior
Behaviour that involves decisions and actions in order to achieve the greatest satisfaction or maximum fulfillment of goals * * Marginalism: benefits and costs
When considering whether it is worthwhile altering the status quo, one must consider:
The incremental (marginal) benefits arising from the change
The incremental (marginal) cost of making the change

Economic Efficiency
Economic efficiency is attained when the economy produces:
A mix of goods and services
That maximizes society’s satisfaction levels
Subject to the constraints imposed by the economy’s finite stock of productive resources

Requires the attainment of:
Full Employment – all available resources are employed
Full Production – all resources are fully employed to produce a mix of output that is most desired by society * * * * *
Full production
Allocative efficiency
When all available resources are devoted to the combination of goods most wanted by society *
From society’s perspective the most desirable mix of office and residential space will be located at that point on the efficiency frontier where the marginal benefit (MB) of residential space equals its marginal opportunity cost (MC). At the point where MB=MC allocative efficiency is attained.

Productive efficiency
When goods or services are produced using the lowest cost production methods

Productions possibilities table
Efficiency
Full employment and full production
Fixed resources
Fixed technology
Two products only * * * *

Type of product Production alternatives A B C D E
Residential Space (in mio m2) 0 1 2 3 4
Office Space (in mio m2) 10 9 7 4 0
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Production Possibilities Curve

In the context of the PPC, opportunity cost is the amount of one output that is sacrificed to obtain one additional unit of the second output

PPC can be used to:
Illustrate the importance of society’s choice between current and future consumption
Demonstrate the economic basis for trade between nations

Markets and Competition
Buyers determine demand
Sellers determine supply
A competitive market has many buyers and sellers each with a minor impact on the market price

Competition
Perfect competition
Products are all the same
Many buyers/sellers = no single buyer/seller can influence market price
Monopoly
One seller
Seller controls