ECO401 Short Notes Set 2

What is Economics?

“Economics is the study of how we the people engage ourselves in production, distribution and consumption of goods and services in a society.”

Normative economics:

Normative economics refers to value judgments, e.g. what “ought” to be the goals, of public policy. Normative statements cannot be tested.

Positive Economics:

The analysis of facts and behavior in an economy OR “the way things are.”

Goods Goods are the things which are produced to be sold.

Services Involve doing something for the customers but not producing goods.

Factors of production:

Factors of production are inputs into the production process. The factors of production are: o Land includes the land used for agriculture or industrial purposes as well as Natural resources taken from above or below the soil o Capital consists of durable producer goods (machines, plants etc.) that are in Turn used for production of other goods o Labor consists of the manpower used in the process of production. o Entrepreneurship includes the managerial abilities that a person brings to the Organization entrepreneurs can be owners or managers of firms. Scarcity: Shortage of resources because economic resources are unable to supply all the goods demanded.

Rationing

A process by which we limit the supply or amount of some economic factor which is scarcely available

Economic Systems:

A free market/capitalist economy is a system in which the questions about what to produce, how to produce and for whom to produce are decided primarily by the demand and supply interactions in the market.

Optimum:

Nepotism:

A system in which economic decisio ns are taken by the dictator which may be an individual or a group of selected people

Command or planned economy:

A mode of economic organization in which the key economic functions for whom, what, how to produce are principally determined by governmen t directive.

Producing the best possible results (also optimal)

Equity in economics:

A situation in which everything is treated fairly or equally, i.e. according to its due share

Doing unfair favors for near ones when in power

Microeconomics:

The behavior of individual elements in the economy

Macroeconomics:

The economy as whole or on aggregate level.

Rational choice:

The choice based on pure reason and without succumbing to one’s emotions or whims.

Barter trade:

A non-monetary system of trade in which “goods” not money is exchanged.

Opportunity Cost:

It is what must be given up or sacrificed in making a certain choice or decision.

Marginal Cost:

Marginal cost is the increment to total costs of producing an additional unit of some good or service.

Marginal benefit:

The increment to total benefit derived from consuming an additional unit of good or service.

Production Possibility Frontier (PPF):

The maximum amount of goods and services which the country can produce in a given time with limited resources, given a specific state of technology

Economic growth:

An increase in the total output of a country over time

Perfect competition:

A situation in which no firm or consumer is big enough to affect the market price.

Shortage:

Shortage is a situation in which demand exceeds supply, i.e. producers are unable to meet market demand for the product.