1 ECONOMICS AS A SOCIAL SCIENCE

1 Economics as a social science

2 The development of models in economics based on assumptions.

3 Ceteris paribus: all things being equal.

4 Positive and normative economics; Positive and normative economics

1) Positive economics is the scientific or objective study of the subject.

2) Positive statements are statements about economics that can be proven to be true or false.
They can be supported or refuted by evidence.

3) Normative economics is concerned with value judgements.

It deals with the study of and presentation of policy prescriptions about economics.

4) Normative statements are statements that cannot be supported or refuted.

Ultimately, they are viewpoints about how economies and markets should work
5 Disposable income: 可支配收入
Question

India suffers from an extreme shortage of doctors, with just one physician for every 1800 people. The
government is also reluctant about its public health spending, allocating just 1.4 per cent of gross domestic
product, compared with 3.1 per cent in China. As a result, India’s public healthcare system – on which
working-class and poor Indians still rely – has neither the staff nor equipment to provide a reasonable
standard of care for the seriously ill and injured patients seeking treatment.

Many patients are turned away from public hospitals for lack of beds, and even when they are seen,
doctors have little time to spend with each patient. Waiting lists for emergency, life-saving surgery can be
anything from six months to two years long. ‘The majority of the Indian population is truly disenfranchised
from access to healthcare,’ says Dr Vivekanand Jha, executive director of the George Institute for Global
Health, India. ‘Public healthcare is completely broken. It’s difficult for everyone to be given the kind of
attention they deserve.’

(a) Explain which are the positive statements and which are the normative statements in this passage.
2 THE ECONOMIC PROBLEM
1 Basic economic problem

1) Scarcity

A situation where there is not enough resources to satisfy unlimited wants.

2) Economic goods

Resources that are scarce are called economic goods.

3) Free goods

Resources that are not scarce are called free goods.

4) Basic economic problem

What to produce? How to produce? For whom to produce.

2 Choice

Resources are scarce compared to the unlimited wants Making choices

3 Opportunity cost

Choices have to be made Giving up other choices (alternatives)

Opportunity cost: The benefit lost from the next best alternative.

4 Scarcity and opportunity cost

Scarcity result in making choices, and these choices come with associated opportunity costs.
5 Opportunity cost, free and economic goods

1) Free goods doesn’t need resources to produce, has no opportunity cost.

2) Economics goods need resources to produce, has opportunity cost.

6 Renewable and non-renewable resources

1) Renewable resources

Are resources, such as fish stocks or forests, that can be exploited over and over again because
they have the potential to renew themselves.

2) Non-renewable resources

Are resources, such as coal or oil, which once exploited cannot be replaced.
7 Economic resources

1) Factors of Production

Factors of production are the inputs to the production process: land, labour, capital and
enterprise or entrepreneurship

• Land – Natural resource. Things such as oil, coal, rivers.

• Labour – Human resource that is available in any economy.

(Quality of labour is essential for economic progress.)

• Capital - Man-made goods used to make other goods.

(Such as machines, equipment, robots and computers)

• Entrepreneurship - The willingness of an entrepreneur to take risks and organise production.

Question

1 what is the opportunity cost to a student of going to a university or college?

2 What are the four factors of production?

3 What is the basic economic problem?

3 PRODUCTION POSSIBILITY FRONTIERS
1 Production Possibility Curve (PPC)

1) PPC shows the maximum quantities of different combinations of output of two products, given
current resources and the state of technology.

2) PPC is sometimes referred to as production possibility frontier (PPF).

2 PPC and efficient or inefficient allocation of resources

• at point C: maximum use of resources, it is an efficient output.

• at point F: there is not full use of resources, it is an inefficient

output.
• at point G: currently unattainable, there are not enough resources
to produce outside the PPC.
3 PPC and opportunity cost

• From C to D:

Manufactured goods Nonmanufactured goods

Point C 30 units 30 units
Point D 35 units 20 units
From C to D +15 units -10 units
Opportunity
cost from C to D Giving up 10 units of non-manufactured goods.
• Opportunity cost and marginal analysis

A straight line PPC: opportunity cost is constant.

A concave-down PPC: opportunity cost is increasing. (concave to origin)

4 PPC and economic growth or decline

1) Economic growth (Shift of PPC)

• An increase in the quantity or quality of the inputs to the production process means that
an economy has increased its productive potential.

• PPC will shift to the right.

• Reasons of economic growth

1. The quantity of resources available increases.

(Such as the increase in the number of workers in the economy, or new factories and
offices might be built.)

2. An increase in the quality of resources.

(Such as education will make workers more productive, technical progress will allow
machines and production processes to produce more.)
2) Economic decline

The PPF can shift inwards as a result of the decrease of the quality or quantity of resources available.

(Such as a rapid fall in the number of workers, war or climate disaster.)

5 Movement from inside to a point on the boundary of PPC

If resources became fully used, the economy could move from

inside the boundary to a point on the boundary. (From F to C/D/A/E)
6 Consumption and investment Better off today?
be better off in the future?
1) Consumer goods

Goods and services that are used by people to satisfy their needs and wants.

2) Capital goods

Goods that are used in the production of other goods.

3) Consumption or investment

Country A: produces at point C more consumer goods

Initially
Country B: produces at point D more capital goods

Country A: PPC shifts from PP to QQ (pint E)

10 years
later
Country B: Grow faster PPC shifts from PP to RR (point F)
7 Efficiency

1) Productive efficiency

• It means production takes place at the lowest cost, produces the maximum output.

• All points on the boundary are productively efficient.

2) Allocative efficiency

• Allocative efficiency occurs when social welfare is maximised.

8 Choice and PPC

Different combination of goods shows different choice of an economy.

Question

1. Create a PPF diagram. Indicate a position where an economy is:

• producing less than it could

• using all of its resources efficiently

• unable to reach, because it does not have enough resources.

2. What does an outwards shift of the PPF indicate?

3. Why does the amount of capital goods produced in an economy influence future growth rates?
Past-paper question