Unit 1.1 - What is economics?
What you need to know and understand:
Key concepts:
Concepts to understand:
- Economics as a social science
- The social nature of economics
- The basis of the study of economics: microeconomics and macroeconomics
- Introduction to the nine central concepts: scarcity, choice, efficiency, equity, economic well-being, sustainability, change, interdependence, intervention
- The problem of choice
- Factors of production—land, labour, capital and entrepreneurship
- Scarcity
- Unlimited human needs and wants to be met by limited resources
- Scarcity and sustainability
- Opportunity cost
- The cost of choice
- Free goods
- The basic economic questions
- What/how much to produce, how to produce and for whom to produce?
- Means of answering the economic questions
- Market versus government intervention
- Economic systems: free market economy, planned economy and mixed economy
- The production possibilities curve model (PPC)
- Assumptions of the model
- Increasing versus constant opportunity cost
- Features of the model: opportunity cost, scarcity, choice, unemployment of resources, efficiency, actual growth and growth in production possibilities
- Modeling the economy
- The circular flow of income model
- Interdependence between economic decision-makers interacting and making choices in an economy: households, firms, the government, the banks and financial sector, and the foreign sector (foreign firms and households)
- Leakages and injections
Key concepts:
- Scarcity
- Choice
- Efficiency
- Equity
- Economic well-being
- Sustainability
- Change
- Interdependence
- Intervention
Concepts to understand:
- Economics is a social science characterized by interdependence, which focuses on how people interact with each other to improve their economic well-being, influenced and enabled by their values and their natural surroundings.
- The economic world is dynamic in nature and constantly subject to change.
- Economic theories are based on logic and empirical data, using models to represent and analyze this complex reality. Individual and collective motivations and behaviours are complex and diverse, and their understanding entails the interaction of a variety of disciplines such as philosophy, politics, history, and psychology.
- Economic decision-making impacts the relative economic well-being of individuals and societies.
- The central problems of economics are scarcity and choice. This forces societies to face trade-offs, opportunity costs and the challenge of sustainability.
- Debates exist in economics regarding the potential conflicts between economic growth and equity
- and between free markets and government intervention.
- Endless economic growth, based on the consumption of finite resources, cannot continue indefinitely. New economic models and social movements have challenged mainstream opinion about the purpose of growth and how the economy could be redesigned to support long-term prosperity.
TEXTBOOK unit 1.1
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