Notes On Economics

Economics oikos to managenemo house
- social study
- teaches how to use efficiently scarce resources (human, capital, money, resources)
Micro-economics using resources at a firm’s level
Macro-economis using resources at a national level (federal/provincial)
Types:
Analytical/Positive
- based on facts ex. Inflation rate, growth rate, unemployment rate
- normative based on opinion
Fallacy
- a statement that appears to be true but is not a) Fallacy of Composition - what is good for an individual is good for society and vice versa
b) Post-hoc Fallacy - if event B occurs after event A, B is always caused by A
c) Fallacy of Single Causation - there is only one cause for a series of negative events
Three Basic Economic Laws
Opportunity Cost everything that is lost for choosing another option
Assumptions:
A) only two goods are produced - consumer goods for direct personal use ex. to read, clothes, phone, shoes - capital goods business-to-business used by businesses to produce other goods ex. tractors, industrial equipment
B) all resources are used at full capacity - no unemployment - no idle equipment - no unused land
1. The Law of Increasing Relative Cost
Ex.
Production Alternatives Tractors Bread Opportunity Cost for Tractors
A 1 15 000 B 2 14 000 1000 breads
C 3 12 000 2000 breads
D 4 9 000 3000 breads
E 5 5 000 4000 breads 0 5000 breads
- to increase the production of one good, increasing quanities of the other good have to be sacrificed
2. The Law of Diminishing Returns
Ex.
- two inputs land is fixed workers increase
- output corn
* If atleast one input is fixed, the output will increase but only to a point; the yield will be lower and lower. *
Year Land (ha) Workers Corn Production (kg) Yield
1 10 1 1000 2 10 2 2000 1000
3 10 3 2800 800
4 10 4 3400 600
5 10 5 3800 400
6 10 6 3900 100

3. The Law of Increasing Returns to Scale
- if all inputs increase simultaneously, the output will continue to increase
Ex.
Year Land (ha) Workers Corn Production (kg) Yield
1 10 1 1000 2 20 2 2000 1000
3 30 3 3200 1200
4 40 4 4600 1400
5 50 5 6200 1600
6 60 6 8000 1800
7 70 7 10000 2000
Production Possibilities Curve (PPC)
- a graphing representation of maximum quantities that can be produced with existing resources
- any point inside the PPC shows that the resources are not efficiently used or there is environmental problems
- any point outside the PPC is just a future goal that cannot be achieved with current/existing resources
PPC Shape
- concave the opportunity cost increases with every extra unit produced (increasing quantities of the other products have to be sacrificed)
- straight if the opportunity cost is equal
A. Economic Systems a set of laws and institutions helping a country to use its resources
What to produce? How to produce it? For whom to produce?
Traditional Economy Command Economy Market Economy
What to produce? what is needed for own consumption determined by central authority What the consumers have demand for
How? Using primitive methods passed on from generation to generation determined by central authority in the state’s best interest Using privately owned factors of production
For whom? for own consumption, for use by immediate family; surpluses in trade determined by central authority for consumers having different purchasing power
Strengths minimal change decisions made as a family unit
Little damage to environment
Consumption and waste minimized
Focus on self-reliance and simplicity
No social conflicts, reproduction planning promotes growth (capital goods production favored over consumer goods)
Planning helps reduce waste
Equitable distribution of income and wealth
Planning provides stability (business cycles

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