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 Micro Economics
The Telescopic level is called Macroeconomics
Let’s 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.
- And the total income and output of the entire economy.
Key concepts
- Scarcity
- Choice
- Efficiency
- Equity
- Economic well-being
- Sustainability
- Change
- Interdependence
- Intervention
(Note: you won’t be asked on these concepts; however, you will have to use the understanding of these in your answers.)
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.
Efficiency and Equity
Efficiency
- Maximizing output from limited resources without wasting any inputs, leading to optimal production and allocation.
Equity
- Ensuring a fair distribution of economic benefits, addressing income disparities and providing equal opportunities.
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.
(Exam tip: Land not only refers to Land, but land in economics is where a certain good is produced: for eg – a tree is the land for the production of apples.)
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 vacation.
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.
