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Social science

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A study of people in a society and how they interact with each other.

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Economics

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The study of how individuals and societies, experiencing virtually limitless wants, chooses to allocate its scarce resources to satisfy those wants.

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Scarcity

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The limited availability of economic resources relative to society's unlimited demands for goods and services.

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Issues in Economics

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"Government Involvement, Sustainability, Development, Efficiency vs. Fairness "

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Opportunity Cost

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The next best alternative foregone when an economic decision is made.

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Basic economic problem

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"What should be produced and in what quantities? How should things be produced? Who should things be produced for? "

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Free Market System

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An economy where the means of production are privately held by individuals and firms. Demand and supply determine what/how much to produce, how to produce, and for whom to produce.

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Planned Economy

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An economy where the means of production are collectively owned (except labour). The state determines what/how much to produce, how to produce, and for whom to produce.

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Goods

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Tangible products (durable and non-durable goods)

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Economic good

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Goods or services that have utility to society, a degree of scarcity, and therefore an opportunity cost and a value.

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Free good

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Goods with no opportunity cost, virtually unlimited abundance, and can be consumed with zero effort.

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Durable Goods

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Consumed over time (i.e. cars and washing machines)

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Non-Durable Goods

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Consumed over short period of time (ice cream or a bottle of mineral water)

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Services

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Intangible products

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Land

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Anything that comes from the land or the sea that goes into a product

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Labour

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Physical and mental talents people contribute to the production process

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Capital

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Goods that are used in the production of other goods ; assets

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Management (entrepreneurship)

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The factor of production involving organising and risk-taking.

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Money

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A rationing device that decides who gets what quantities of the available resources and goods.

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Positive Economics

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Matters of economics that can be proven right or wrong by looking at the facts.

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Normative Economics

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Matters of economics that are based on opinion and so are incapable of being proved right or wrong.

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Incentives

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Factors (positive and negative) that encourage, motivate, and influence people to act in a certain way.

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Production possibility curves

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A model that shows the maximum combination of goods and services that can be produced by an economy in a given time period, if all the resources in the economy are being used fully and efficiently and the state of technology is fixed : potential output

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Utility

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Measure of the usefulness or pleasure a consumer receives when they consume a product

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Total Utility

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Total satisfaction gained from consuming a certain quantity of product

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Marginal Utility

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Extra utility gained from consuming one more unit of a product

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Microeconomics

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The part of economics dealing with smaller, discrete economic agents and their reactions to changing events

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Macroeconomics

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Relating to the branch of economics concerned with large-scale or general economic factors

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Ceteris paribus

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(latin; "all other things being equal") The method of holding all but one variable constant when using models to illustrate economic theories

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Households

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The group of individuals that consume goods and services and are the owners and providers of the four factors of production.

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Firms

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The productive units in the economy that turn the factors of production into goods and services.

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Private sector

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The part of production in the economy that is owned by private individuals

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Public sector

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The state-owned sector of the economy that provides goods and services

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Economic need

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What we need to function from a physiological or socio-economic perspective

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Economic want

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Specific ways to fulfil our needs

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Production Possibility Frontier

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The curve that shows the maximum combination of goods a country can produce in a specific period of time, using all of its resources and the available technology in the most efficient way.

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Economic efficiency

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The situation in which a country cannot increase the production of one good without decreasing the production of another good. (when the state of production is on the PPC)

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Marginal

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Referring to the next additional smallest unit added to the current total

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Potential Output

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The possible production that would be possible in an economy if all available factors were being employed (on the PPC) and the state of technology is fixed

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Actual Output

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The actual production of goods and services within a given time period. (Below the PPC)

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Potential Growth

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An increase in the maximum amount of goods and services that can be produced, caused by a change in the economy (outwards shift of PPC).

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Sustainable Development

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Development that meets the needs of the present, without compromising the ability of future generations to meet their own needs.

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Capital goods

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Goods that are used in the production of other goods and services i.e. machines, buildings and other plant and equipment.

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Consumer goods

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products that are purchased for consumption by the average consumer.

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The 8 broad social goals

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Economic... Efficiency Equity Freedom Growth Security Stability Full employment Sustainability

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Economic growth

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The growth of real output in an economy over time. Usually measured as growth in real GDP.

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GDP Germany

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$3.47 trillion

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GDP per capita Germany

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$41,000

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Growth rate 2016 Germany

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2%

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HDI Germany

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0.93

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Economic Development

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The broad concept involving improvement in standards of living, reduction in poverty, improved health and education (HDI).

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GDP North Korea

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$12.4 billion

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GDP per Capita North Korea

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$1,300

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Growth Rate 2016 North Korea

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3.9%

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HDI North Korea

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(1995) 0.766

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Actual growth

answer

This occurs when previously unemployed factors of production are brought in to use. It is represented by a movement from a point within the PPC to a point closer to the PPC.

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GDP

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Measure of the market value of all final goods and services produced within a country in a given period of time.

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GNI

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Measures the market value of all final goods and services produced by a country's citizens or residents (i.e. companies abroad)

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GDP U.S.

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$18.57 trillion

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GDP/capita U.S.

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$57,500

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Growth rate U.S.

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1.6%

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HDI U.S.

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0.92

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AO2 - Explain the process of model building in economics.

answer

Economists create theoretical models to test and illustrate their theories. When doing so, one variable can be manipulated to observe how other variables (which are kept constant) are altered as a result. This method of keeping all but one variables constant is called "Ceteris Paribus"

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AO2 - Explain why Economics is considered a social science.

answer

It is 'social' because it deals with human society and behaviour, and it is a 'science' because it uses a scientific method to explain economic events and try to predict economic outcomes likely to occur in the future.

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AO1 - Outline the social scientific method.

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Scientists draw conclusions and create knowledge through the observation, analysis and testing of data from the world around us. Social Scientists identify the research question, choose and apply an appropriate method (Quantitative or Qualitative), and analyse results. Economists propose a hypothesis about how certain variables relate to each other. They observe a group of data to find patterns, and then compare the predictions of their hypothesis with the real-world outcomes, to see if they can make a generalised conclusion.

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AO2 - Explain the reason Ceteris Paribus is used in economic models.

answer

The method of Ceteris Paribus is necessary in economic models because when economists want to examine the effect of one variable on another, the effect of the one variable must be isolated by assuming that there is no change in any of the other variables. This prevents an unfair test of the economists hypothesis.

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AO3 - Examine the relationship between opportunity cost, scarcity, and choice.

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Opportunity const arises due to scarcity of resources and the choice of picking one resource over its next best alternative; the "economic man" is rational and faces decisions that, when made, have next best alternatives foregone. Because there is a scarcity in economic goods, one cannot meet all their wants, thus decisions arise.

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The three economic questions.

answer

1.What should be produced and in what quantities? Ex: Should we produce weapons or pork? How much deodorant should be produced? (with the current teen boy population) 2. How should things be produced? Ex: Should sports shoes be produced by an automated production line or by manual workers? 3. Who should things be produced for? Ex: How will the national income of the economy be distributed? Which teachers get higher incomes than nurses?

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Cons of CPE

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1. Total production, trade, investment, consumption are complicated to plan, and there will be a misallocation of resources, shortages, and surpluses 2. Because there is no price system, there is no efficient use of resources 3. Incentives are distorted, so output and/or quality will suffer 4. No personal liberty and freedom of choice 5. Government does not share the same aim as the population, so unpopular or corrupt plans may still be implemented.

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Cons of FME

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1. Demerit goods are over-provided and at high prices 2. Merit goods are under provided and are only produced for those who can afford them 3. Resources used up too rapidly because firms want maximum profits, and the environment way suffer too 4. Some members of society (homeless, orphans, the sick) will not survive 5. Large firms may dominate society, so prices may be high, there is a less efficient consumption of resources, and there is excessive power.

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AO4 - Draw a correctly labeled Production Possibilities Curve (aka. Production Possibility Frontier)

answer

(do it)

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AO3 - Examine the relationship between the PPC and scarcity, choice, and opportunity cost.

answer

Scarcity of F.O.P is the reason why there is a PPC; economic choice has to be made between producing either product A or product B, and the opportunity cost of increasing the production of either product is the change in the production of the other product as a result of the former.

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AO2 - Explain how a PPC can show a situation of unemployed resources and inefficiency.

answer

When the point displaying the state of production is below the PPC curve, some amount of resources are not used because the potential maximum amount of production has not been reached, thus displaying inefficiency.

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AO3 - Examine the assumption of rational economic decision-making.

answer

Individuals will always act logically and in self-interest to make decisions with the greatest benefit or satisfaction available. People consistently try to maximise their their advantage in any situation and therefore consistently try to minimise their losses. Rational decision making implies that all social phenomena are driven by individual human actions. Arguments against rational decision making include behavioural economics (predictably irrational) and the fact that humans cannot perceive enough information in order to make the choice that truly provides them with their maximum satisfaction. For example, political fractions that were in favour of the Brexit vote held on June 24, 2016, used promotional campaigns that were based on emotion rather than rational analysis. These campaigns led to an unexpected result of the vote. The financial markets then responded with short-term volatility(fluctuation in value of currency). People did not make a rational choice.

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Marginal

answer

Referring to the next additional smallest unit added to the current total

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