Economics Theme 1

Economics Theme 1

1. 1.1 Nature of Economics

   • Develop models & make assumptions
   • Ceteris Paribus
     • ‘All other things remain constant’
   • Inability to make scientific experiments
   • Positive
     • Objective
     • Can be tested
   • Normative
     • Value Judgements
       • Different opinions about same statistic
         • Help to make policy decisions
     • Cannot be tested
   • Scarcity
     • Unlimited wants & finite resources
       • Renewable
       • Non- renewable
   • Opportunity cost
     • Value of next best alternative foregone
   • PPF
     • Maximum possible output an economy can achieve when its resources are fully & efficiently employed.
     • Opportunity cost
     • Economic growth/decline
     • In/Efficient allocation of resources
     • Possible or unobtainable resourcez
     • Causes of right shift:
       • Technological advancement
       • Increase in quality/quantity of labour
       • New resources
       • Increase in productivity
       • Factors of production
         • Land
         • Labour
         • Capital
         • Enterprise
     • Causes of left shift:
       • War
       • Natural disasters
       • Epidemic
     • Law of diminishing returns
     • e.g.
       • Capital Goods
         • Durable
         • Can produce other goods
         • e.g. machinery
       • Consumer Goods
         • Commodities
         • e.g. food
   • Specialisation
     • Where a business or area focuses on the production of a limited scope of goods or services
       • To gain greater productive potential
       • Countries
         • Ghana: Cocoa Norway: Oil Export
       • Businesses/organisations
       • Region
         • West Midlands: Motor Assembly
     • Benefits:
       • Higher output
       • Variety
       • Bigger market
       • Competition & lower prices
   • Division of Labour
     • Costs:
       • Work can be monotonous
       • High worker turnover
       • Structural unemployment
         • Min. Training so no transferable skills
       • Standardised produced
         • Lacks variety
     • Benefits:
       • Higher productivity
       • Less training needed
   • Types of economies
   • Functions of Money:
     • Medium of exchange
     • Store of value
     • Measure of value
     • Method of deffered payment