Introduction to Economics
Understanding Economics
- Economics is the study of scarce resources and how decisions are made to allocate these resources efficiently.
- Analyses both individual actions (Microeconomics) and broader economic activity (Macroeconomics).
- Involved in defining, gathering, and organising economic evidences.
Fundamental Concepts of Economics
- Scarcity: The fundamental economic problem of having seemingly unlimited human wants in a world with limited resources.
- Opportunity Cost: The cost of an alternative that must be forgone in order to pursue a certain action.
- Demand and Supply: Demand refers to how much of a product or service is wanted by buyers while supply represents how much the market can offer.
Key Economic Decisions
- What to produce: Economies need to decide what goods and services to produce based on consumer demands and resource availability.
- How to produce: Determining the most effective way to produce goods and services given the country's resources.
- For whom to produce: Decide who will receive and consume the goods and services produced.
Market Structures
- Perfect Competition: A market structure with many firms, homogeneous products and free entry and exit.
- Monopoly: A market structure where there is only one producer/seller for a product.
- Oligopoly: A market structure in which a small number of firms has the large majority of market share.
- Monopolistic Competition: A market structure with many firms selling products that are substitutes but not identical.
Determinants of Demand and Supply
- Demand is influenced by factors such as prices, income levels, consumer preferences, and expectations.
- Supply is determined by factors including prices, production costs, technology, and expectations of future price movements.
Concepts of Elasticity
- Price Elasticity of Demand (PED): Measures the responsiveness of the quantity demanded to a change in price.
- Price Elasticity of Supply (PES): Shows the relationship between changes in price and quantity supplied.
- Income Elasticity of Demand (YED): Measures response of demand when there's a change in the consumer’s income.
- Cross Elasticity of Demand (XED): Reflects how the quantity demanded of a good can be affected by change in the price of another good.
The Role of Government and Market Failure
- Governments can influence economies through policies, regulations, and taxation.
- Market failure refers to a situation where the free market fails to allocate resources in an optimum and efficient manner.
Interrelationships and Equilibrium
- Demand and supply interact to determine the market prices and quantities of goods and services.
- Equilibrium is achieved when supply equals demand, leading to a stable market situation.
Understanding and Interpreting Graphs
- Graphs play a vital role in economics to display data or illustrate concepts.
- Familiarise with various types of graphs including demand and supply curves, cost curves, and indifference curves.
- Develop the ability to read, interpret, and construct economic graphs.
Remember, successful economics study requires not just understanding the key concepts, but also applying and analysing them in a variety of contexts.