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ECS1501 summarized notes for exam preparation. for assistance. All the best on your exams!!
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ECS1501NOTES
,Units 1 and 2
Economics is the study of how our scarce productive resources are used to satisfy human
wants.
Resources available for production of goods and services are limited - wants for goods and
services are unlimited.
Basic Economic Problem: Scarcity, choice and opportunity cost
Wants Human desires for goods and services, unlimited
Needs Necessities, essential for survival
Demand Only a demand for goods and services if those who want to
purchase them have the ability to do so
Opportunity Cost Opportunity cost of a choice is the value of the best alternative
that could have been chosen but was not chosen. Everything
involves a trade-off ‘ something is given up in favour of something
else’. Measures the cost of the alternative.
Social Science Actual experiences, value judgments or opinions (economics)
Natural Science Can be studied in a lab, very precise
Positive Statement Can be proved or disproved by comparing with facts (Interest
rates rose by 10% in 2006)
Normative Statement Involves opinions or value judgments (this government is badly
run)
Level Level of prices
Rates Rate of increases in prices (%)
Three Central Economic Questions:
What should be produced? – Market mechanism (only produce goods and services that
consumers are willing to spend their income on and which can be supplied profitably)
How should it be produced? – Factors of production
For whom should it be produced? – Distribution of income (the more valuable your contribution
and that of the resources you own, the higher your income)
Goods
Consumer Goods used or consumed by individuals or households to satisfy wants
,Capital Goods used in the production of other goods
Non-durable Only used once (diaper)
Semi-durable Limited life-span (Battery)
Durable Normally last a number of years (Motorcar)
Final Consumed by households and firms (Bread)
Intermediate Purchased to be used as inputs in producing other goods before they are
sold to end users (Flour)
Private Good consumed by individuals and households
Public Good used by the community or society at large (Traffic lights)
Free Not scarce and have no price (sunshine and air)
Economic Goods produced with scarce resources and can command a price in the
market
Homogeneous Identical (metals, electricity, water)
Heterogeneous Differentiated goods (cereal)
Factors of Production
Resources used to produce goods and services
1. Capital (machines, tolls and buildings)
2. Entrepreneurship (people prepared to take calculated risks and who seize
opportunities as they arise)
3. Labour (human effort put into the production o goods and services)
4. Natural Resources (‘natural wealth’, arable land, mineral deposits etc.)
Factor Income (incomes earned by factors of production)
• Labour – wages and salaries
• Land – Rent
• Capital – Interest
• Entrepreneurs - Profit
Factor Market (services of factors of production purchased and sold in many markets)
• Labour Market (services are bought and sold)
• Markets for capital goods
Production techniques
Capital Intensive and Labour Intensive
Income Flow earned during a period
Wealth Stock of physical and financial assets
, Economic Systems
Market: Any contract or communication between potential buyesr and potential sellers of a
good or a service
Traditional Same goods are produced and distributed in the same way as each
successive generation and each participant’s tasks and methods are
prescribed by tradition
Command Participants are told what and how to produce as well as how to distribute
by central authority. Centrally planned.
Market Individual decisions and preferences are communicated and coordinated
through the market mechanism. Market prices are the most important
element.
Mixed In reality, today, most economies will usually show a dominant set of
features.
Conditions for a market to exist: at least 1 buyer and 1 seller, seller must have something to
sell, buyer must have means to purchase, exchange ratios or market price must be established,
agreement must be guaranteed by law or tradition
Privatization Private company is owned and run by private citizens/companies
(government service contracted out or sold to a private company)
Nationalization State owned and run institutions (government takes over ownership and
running of a particular service or company)
Sectors
Primary Sector Raw materials produced (mining, forestry, fishing)
Secondary Sector Manufacturing (canning fruit)
Beneficiation of primary goods, consumer goods and capital
goods
Tertiary Sector Services and trade (trade, transport, education)
Microeconomics Concerned with issues that involve the economic behavior of
individual consumers, individual decision makers in households,
firms and other organizations
Macroeconomics Concerned with the economic issues that involve the overall
performance of the economy (total production, income and
expenditure, economic growth, aggregate employment)
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