What is economics?
Section 1: Defining Economics
- Economics is a social science that explores how individuals, groups, and nations manage resources.
- It is about making choices in the face of scarcity.
- The central problem of economics revolves around scarce resources and unlimited wants.
- Economics studies the production, distribution, and consumption of goods and services.
- It can be split into two main branches: microeconomics, which focuses on individuals and businesses, and macroeconomics, which looks at the economy as a whole.
Section 2: Economic Systems
- An economic system is the way a society organises the production, distribution, and consumption of goods and services.
- There are three main types of economic systems: market economies, command economies, and mixed economies.
- A market economy, also known as a capitalist economy, is one where decisions on production and consumption are made by individual producers and consumers based on their own self-interest.
- A command economy, also known as a centrally planned economy, is one where decisions on production and consumption are made by a central authority, usually the government.
- A mixed economy is a combination of market and command economies, where both the market and the government play a role in deciding what to produce, how to produce it, and for whom to produce it.
Section 3: Basic Economic Concepts
- Supply and demand are fundamental concepts of economics. They determine the price and quantity of goods and services in a market.
- The law of demand states that the quantity demanded of a good or service decreases as its price increases, ceteris paribus (all other things being equal).
- The law of supply states that the quantity supplied of a good or service increases as its price increases, ceteris paribus.
- An equilibrium price is the price where the quantity demanded equals the quantity supplied.
- Opportunity cost is the value of the next best alternative given up when making a decision.
Section 4: The Role of Government in Economics
- The government plays a crucial role in economics through setting macroeconomic policies, such as monetary and fiscal policy.
- The government can also intervene in the market to correct market failures and to achieve a more equitable distribution of income and wealth.
- Monetary policy involves managing the money supply and interest rates to control inflation and stabilise the economy.
- Fiscal policy involves changing government spending and taxes to influence the level of demand in the economy.
Section 5: International Economics
- International economics studies the economic interactions between different countries.
- It covers topics such as trade, international finance, and development economics.
- Key concepts include comparative advantage, which explains why countries trade, and exchange rates, which affect the price of imports and exports.
- It also looks at the role of international organisations, such as the World Trade Organization and the International Monetary Fund.