−What could you be doing if you were not currently studying?
−How many new roads have to be forgone if the government spends tax revenues on homeland security?
• Land • Labour • Capital
John Sloman, Keith Norris: Principles of Economics 2e © 2007 Pearson Education Australia
Resources: land
• Any natural resource provided by nature used in the process of production
Economics is the study of society’s decisions about
– production – consumption – allocation of scarce resources
in order to satisfy as many unlimited wants as possible.
−Earlier: axe, bow and arrow −Now: buildings, production equipment,
software, factories.
John Sloman, Keith Norris: Principles of Economics 2e © 2007 Pearson Education Australia
John Sloman, Keith Norris: Principles of Economics 2e © 2007 Pearson Education Australia
Resources: capital
• Capital is the physical plant, machinery and equipment used to produce other goods. That is, human-made goods that do not directly satisfy human wants, for example:
• Macroeconomics is the branch of economics that studies decision-making for the economy as a whole.
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5 Macroeconomic Issues
– aggregate demand, aggregate supply – economic growth – unemployment – inflation – balance of trade – exchange rates
A note about financial capital
• Economists do not include money in their definition of capital money simply gives a measure to the value of assets.
John Sloman, Keith Norris: Principles of Economics 2e © 2007 Pearson Education Australia
Opportunity cost
• The best alternative sacrificed for a chosen alternative
• Opportunity cost applies to personal, group and national decision-making, for example
John Sloman, Keith Norris: Principles of Economics 2e © 2007 Pearson Education Australia
Short-Run v Long Run
• Resources can also be called the factors of production.
John Sloman, Keith Norris: Principles of Economics 2e © 2007 Pearson Education Australia
Three categories of resources
• Any additional action by an individual or a firm, such as buying an additional pair of shoes or increasing production of a product by an additional unit, brings additional cost.
• Weighing the costs and benefits can help government officials determine if allocating additional resources to a particular public program will generate additional benefits for the general public
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4 Two branches of economics
• Microeconomics is the branch of economics that studies decision-making by a single individual, household, firm, industry or level of government.
• The central question in marginal analysis is whether the expected benefits of that action exceed the added cost
John Sloman, Keith Norris: Principles of Economics 2e © 2007 Pearson Education Australia
A-LEVEL Microeconomics basic
/alevelteaching
1 What is Economics about? The problem of scarcity
• Economics is the study of how society chooses to allocate its scarce resources to the production of goods and services in order to satisfy unlimited wants.
• For example: forests, minerals, wildlife, oil, rivers, lakes, oceans
• May be renewable or nonrenewable
John Sloman, Keith Norris: Principles of Economics 2e © 2007 Pearson Education Australia
John Sloman, Keith Norris: Principles of Economics 2e © 2007 Pearson Education Australia
Marginal analysis
• Marginal analysis examines how the costs and benefits change in response to incremental changes in actions.
– the social implications of choice society i.e. taking
into consideration how a certain choice may have an indirect cost on
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Resources
• Resources are the basic categories of inputs used to produce goods and services.
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6 Microeconomic Issues
– demand and supply decisions of what to produce, how to produce, for whom to produce
– the concept of opportunity cost based on comparing what
Marginal analysis
• Marginal analysis helps businesses and individuals balance the costs and benefits of additional actions--whether to produce more, consume more, or other decisions---and determine whether the benefits will exceed costs, thus increasing utility.
Resources: labour
• The mental and physical capacity of workers to produce goods and services
• For example: farmers, nurses, lawyers
Entrepreneurship is a special type of labour the creative ability of individuals to manage the combination of resources to produce products.