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Economics Class Notes 1

The document provides an overview of fundamental concepts in economics, focusing on the decision-making process regarding scarce resources, the role of economic agents (households, firms, and government), and the implications of scarcity and opportunity cost. It explains the production possibility curve (PPC) as a tool for illustrating efficiency and opportunity cost, as well as the factors driving economic growth that can shift the PPC outward. Key definitions and examples are included to clarify these concepts.

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Deandra Maharaj
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Economics Class Notes 1

The document provides an overview of fundamental concepts in economics, focusing on the decision-making process regarding scarce resources, the role of economic agents (households, firms, and government), and the implications of scarcity and opportunity cost. It explains the production possibility curve (PPC) as a tool for illustrating efficiency and opportunity cost, as well as the factors driving economic growth that can shift the PPC outward. Key definitions and examples are included to clarify these concepts.

Uploaded by

Deandra Maharaj
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Economics Class Notes 1

CSEC Economics - Section 1 - The Nature of Economics

Topics : Introductory Concepts in Economics, Production Possibility Curves

Essential Definitions
Economics is a social science that studies the decision-making process in the allocation
of scarce resources to meet the needs and wants of society

An Economy is a system in which scarce resources are organized for the production
distribution and consumption

Scarcity is the central economic problem arising from the numerous wants compared to
the resources available to meet these wants

A production possibility curve shows all possible combinations a country is capable of


producing using all their resources.
Opportunity cost is the cost or benefit foregone from the next best alternative

Choice is a selection by an individual of one thing over alternatives in a set of options.

Efficiency is the point at which additional output of one good cannot be obtained
without decreasing the output of another good

INTRODUCTORY CONCEPTS IN ECONOMICS


Economics is a social science that studies the decision making process in the allocation of scarce
resources to meet the needs and wants of society. It is considered a social science because it
studies the behaviors of people. Those Involved In active decision making are known as
economic agents

Economic Agents
Economic Agents are those that play an active role in the Economy. These represent those
that make Economic decisions. Their main concern is to increase welfare. The three main
agents are as follows:

Households
Households are one agent that makes economic decisions. They make decisions about what to
consume and they also own the factors of production which are supplied to firms.
Firms
Firms produce goods and services utilizing factors of production purchased from households

Government
Governments provide the legal framework for households, firms and other institutions in
which to operate. They make decisions about how to reallocate resources and they can also
be involved in productiom

The central problem in Economics : Scarcity


All individuals who are interested in increasing welfare have unlimited wants and needs. At the
same time resources are not unlimited Resources are not limited to material items but can also
include time. As a result all individuals have to make choices. This IS known as the central
problem of economics, scarcity.

Opportunity cost
Where choices are made some opportunity is always given up or lost This is known as
Opportunity cost; the next best alternative forgone.

Example: Consider a choice between purchasing a pizza this friday or saving the money for a
Tobago trip at the end of August If you choose the saving, the opportunity cost is the pizza
forgone.

PRODUCTION POSSIBILITY FRONTIER


Whea (CURVE)
t
OPPORTUNITY COST

Opportunity cost is the cost or benefit


13 foregone from the next best alternative.
The PPF can be used to illustrate
opportunity cost

10 A production possibility curve shows all


possible combinations an economy is
capable of producing using all their
resources.

43Bananas This economy uses all of its resources to


produce Wo goods: Wheat and Bananas.

using all of its resources it can produce


15,000 tons of wheat and 3,000 tons of
bananas or it can produce 10, 000 tons of
wheat and 4,000 tons of Bananas.

1
In order to gain 1000 more Bananas it has to give up 5000 tons of Wheat (15,000 - 10,000). The
opportunity cost of 1000 bananas IS 5000 tons of wheat.

The production possibility curve can also be used to illustrate efficiency.

EFFICIENCY
Efficiency means the elimination of waste. By definition Efficiency is the point at which
additional output of one good cannot be obtained without decreasing the output of another
good

Assume an economy uses all


of its resources to produce
goods X and Y, All possible
combinations exist on and
within the boundary of the
curve.

Combinations on the curve


are efficient as it utilizes all
available resources to attain
the combination (A and B)
Points inside the boundary
are inefficient as some
resources are not utilized and
more of either good can be
produced (C)

Points outside of the


boundary of the curve are unattainable as there are not enough resources available to produce
those combinations of X and Y (D). All points on and within the boundary of the cure are
attainable (A, B, C)
ECONOMIC GROWTH

Economic growth is the increase in the amount of goods and services produced per person, by a
country, in a given period of time. It can also be defined as the increase in Real Gross Domestic
Product per capita. The PPF can be used to illustrate Economic growth.

Assume an economy uses all of


its resources to produce tv,'0
Good X goods X and Y, All possible
combinations exist on and within
the boundary of the curve.

When an economy experiences


Economic growth the PPF shifts
outward. The economy is now
able to produce more of both
goods.

Good Y

Factors that drive Economic growth and cause the PPF to shift outward

Increases in:

Land - Discovery of natural resources - Land represents all natural resources available to the
economy Discovery or the ability to access more resources allows countries to produce more.
Examples include, Oil, Natural Gas, Fish, Diamonds and Beaches.

Labor - Increase in Population or Productivity - Labor is the human element of production.


Immigration could allow for a larger workforce and increased education could result In a greater
skilled workforce

3
Capital - Foreign Direct Investment - Capital is the man made goods used in the production of
other goods These goods can sometimes be expensive FDI can result in increased capital goods
becoming avail for use In production.

Enterprise - Innovation - Enterprise in the factor of production that coordinates all other factors.
How effectively this is done can result in great innovation in the production process, high
productivity of all factors and growth.

Technology improvements can also result in growth. New discoveries about how to improve the
process of production can result in greater levels of productivity.

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