Introduction to Economics

Introduction to Economics

1. Types of Economics

   • POSITIVE ECONOMICS - based on testable theories, e.g. the idea that higher interest rates lead to a fall in aggregate demand can be tested by looking at past data.
   • NORMATIVE ECONOMICS - based on opinion, e.g. the idea that the Government should make the reduction of unemployment its priority, is one person's view; another person might think it is more important to increase growth. Normative statements often have 'should' or 'ought to' in them; they involve value judgements.
   • MICROECONOMICS - focuses on individual markets and decisions by individual households and firms.
   • MACROECONOMICS - focuses on the economy as a whole, e.g. it considers the price level for the economy as a whole, rather than for one market.

2. Sectors of the Economy

   • PRIVATE SECTOR - resources owned and controlled by private individuals.
   • PUBLIC SECTOR - resources owned and controlled by the State.
   • PRIMARY SECTOR - extractive industries, e.g. forestry, fishing, mining.
   • SECONDARY SECTOR - converts raw materials into goods, e.g. manufacturing.
   • TERTIARY SECTOR - service sector, e.g. finance, tourism.
   • In the UK, the service sector has been growing and the primary sector has been declining for some time.

3. Factors of Production

   • Factors of production go through a transformation process and are turned into output.
   • LAND - natural resources, e.g. land itself, minerals, the sea
   • LABOUR - human resources; this depends on the population size, the working age, people's skills and the level of training.
   • CAPITAL - man-made aids to production, e.g. factories and equipment.
   • ENTREPRENEURSHIP - this is the ability to combine factors of production and take risks in establishing new ventures.

4. Types of Productions