UNDERSTANDING OF ECONOMICS

Basic Concepts

• Economics is a social science that studies the production, distribution, and consumption of goods and services.
• Scarcity addresses the basic economic problem, the gap between limited resources and theoretically limitless wants.
• Opportunity cost is the loss of the benefit that could have been enjoyed if the best alternative choice was chosen instead.

Economic Systems

• An Economy is a framework that a society uses to produce and distribute goods and services.
• Market economy is an economic system in which economic decisions and the pricing of goods and services are guided by the interactions of a country's citizens and businesses.
• Command economy is an economy in which production, investment, prices, and incomes are determined centrally by a government.
• Mixed economy is an economic system combining private and public enterprise.

Demand and Supply

• Demand refers to how much (quantity) of a product or service is desired by buyers.
• Supply represents how much the market can offer.
• Equilibrium Price is the price where the quantity demanded equals the quantity supplied.

Types of Goods

• A normal good is a good whose demand increases when consumer income increases.
• An inferior good is a type of good whose demand declines as the level of income in the economy grows.
• A luxury good is a good for which demand increases more than proportionally as income rises.

Role of Government in the Economy

• Government intervention is regulatory action taken by a government in order to affect or interfere with economic actions.
• Public good is a good that is both non-excludable and non-rivalrous, in that individuals cannot be effectively excluded from use and where use by one individual does not reduce availability to others.
• Taxes are compulsory contributions to state revenue, added to the cost of some goods, services, and transactions.

Economic Indicators

• Gross Domestic Product (GDP) measures the monetary value of final goods and services produced in a country in a given period of time.
• Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.
• Unemployment rate is the measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labour force.

Economic Policies

• Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy.
• Monetary policy is a policy laid down by the central bank involving management of money supply and interest rate in order to control inflation and stabilize the economic growth.
• Trade policy is a government's approach to international trade, and can include things like import/export tariffs, trade agreements, and regulations.