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1.1 Understanding the nature of economics

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Economics is broken down to 2 levels:

  • Economics can be looked at from a “microscopic level” and a “telescopic level”.

  • The Microscopic level is called MicroEconomics

  • The Telescopic level is called Macroeconomics

Lets break it down

Microeconomics

  • Examines the behaviour of individual decision making units in the economy, the 2 main groups are: 

  • Households and Firms

Macroeconomics

  • Examines the economy as a whole to showcase the broad picture of the economy.

  • It is a combination of the behaviours of firms and consumers combined 

  • And the total income and output of the entire economy

Key concepts

  • Scarcity

  • Choice 

  • Efficiency

  • Equity

  • Economic well-being     

  • Sustainability

  • Change 

  • Interdependence

  • Intervention

Scarcity and Choice

Scarcity

  • Refers to the idea where resources are inefficient to satisfy the human’s unlimited needs and wants.

  •  there are limited resources and unlimited needs and wants.

Choice

  • Since resources are scarce it is not possible for all human needs and wants to be satisfied. 

  • It is when 1 choice is forgone when making a choice.

Economic Well-Being and Sustainability:

Economic Well-Being

  • Achieving a standard of living where individuals have access to goods, services, and resources necessary for a comfortable and fulfilling life.

Sustainibility

  • Managing resources to meet current needs without compromising the ability of future generations to meet their own needs, focusing on long-term environmental and economic health.

Change and Interdependence:

Change

  • The dynamic process in the economy where variables such as prices, demand, and supply adjust over time, reflecting shifts in consumer preferences and market conditions.

Interdependence

  • A situation where countries or economic agents depend on each other for goods, services, and resources, fostering global trade and cooperation.

Intervention

  • Government actions aimed at correcting market failures, stabilizing the economy, and promoting social welfare through policies like subsidies, taxes, and regulations.

Four Factors of Production

  • Land:
    Natural resources like minerals, forests, and water used in production.

  • Labour:
    Human effort and skills applied to create goods and services.

  • Capital:
    Man-made resources like machinery and buildings used for production.

  • Entrepreneurship:

       The initiative and risk-taking to combine resources and create businesses.

Opportunity Cost

  • The value of the next best alternative that is forgone when making a decision. It represents the benefits you could have received by taking a different action.


For example, if you spend your money on a new phone, the opportunity cost is what you could have done with that money instead, like saving for a vacatio

Free goods

  • Resources that are abundant and available without cost, such as air or sunlight, which do not require allocation through the market.

  •  These are not provided by either the public or private sector because they are naturally abundant.

Economic goods:

  • Products and services that are scarce, have a price, and require resources to produce, like food, clothing, and electronics. 

  • These are typically provided by the private sector for profit.                                                       

  • However, some economic goods, like public parks and education, are provided by the public sector to ensure accessibility and equity for all citizens.

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