Economics Half-Yearly Notes

PRELIMINARY TOPIC ONE: INTRODUCTION TO ECONOMICS

The Nature of Economics * Economic problem: wants, resources, scarcity
Relatively unlimited wants
Relatively limited resources
Scarcity → need for choice
Economic systems: * traditional * command * market * mixed
Three basic economic problems: WHAT/ HOW MUCH g + s should be produced? HOW should the g + s be produced? FOR WHOM should g + s be produced?

* Economic problem: how a society can satisfy the unlimited wants (of individuals or the community) with the limited resources available.

Summary: * Our wants are unlimited * Resources are scarce – that is, the resources we have to satisfy our wants are
* Eg: soil, water, forests, mineral deposits and fishing areas * Limited to the earth’s atmosphere, water and land. Technology ↑ quantity. * Rent: the income rewards derived from the productive use of natural resources.

(2) Labour * Human effort, both physical and mental, used to produce g + s. * Its efficiency varies (from country to country), and it can organise itself (into trade unions) for its own benefit. * Limited due to size of population, size of workforce, and quality of workforce (work ethic) * Wage: the payments made to labour for its mental and manual effort in the production process. Includes salaries, fees, commission.

(3) Capital * The produced means of production; not produced for immediate consumption, but to be used in the production of other g + s. * Generally ↑ productivity of other resources * Limited due to willingness to invest (entrepreneurs have to be prepared to take risks), and level of domestic savings * Interest: usually expressed as a % paid for the use of capital.

(4) Enterprise * Involves organising the other factors of production * Carried out by entrepreneur, who makes all management decisions, and bears the risk. * Limited by supply of entrepreneurial skills, which are in turn affected by size of population,