Economics

As tudyofpeoplethatlooksprimarilyathowthesepeopleuseresourcestoachievethingsthatareintheirowns elfinterest.
Itencompasesm uchm orethanjustm oneyandhowweuseit.
Itsm aininterestisinpeopleandthewayinwhichtheyactandm akedecisions.
Economicsisas ocials ciencewhichs tudiesthebehaviourofIndividuals,HouseholdsandOrganisations,andthewayinwhichthey
uses carceresourcestoachievedesiredends.
Peoplehaveaninfinitenumberofwantswithonlyafinitenumberofresourcestos atisfythem.
Resourcecommodityors erviceusedtom eethumanneedsanddesires
EconomicProblemtheproblemofhavingunlimitedwantswithlimitedresourcestom eetthosewants
Scarcitythefundamentaleconomicproblemofhavings eeminglyunlimitedhumanwantsinaworldoflimitedresources
Economicsthes tudyofproduction,distributionandconsumptionofgoodstos atisfyhumanwantsandneeds
Productionm akings omething,productioninvolveschangingtheform,placeortimeofagoodors ervice
Distributionanyprocesswhichoccursbetweentheproductionofagoodors erviceandtheconsumptionofit
Consumptionusingthegoodors ervice
Goodstangibleitemsthingsproducedbypeople
Servicesactsperformedintradebypeople,intangibles,aninterestingqualityofm osts ervicesisthattheyareusually
consumedbythefirstpurchaseratthetimeofproduction
Wantsdesireswhicharenotallnecessities,wantscanincludeneeds
Needsnecessities,oncelimitedtofood,s helterandclothing,nowam uchlargercategoryform ostpeople,depending
ontheirownlifestyleandwealth
Choiceandopportunitycost
Thegoalofeachindividualistom aximizeutilityfromtheresourcesthatwedohave
Howevertheproblemisthattheresourcesthatweusehavealternativeuses
Wehavetochoosewhatisbestforusm akingtheoptimumuseofresourcesavailable
Makingdecisionsrequirescomparingthecostsandbenefitsofalternativecoursesofaction
Opportunitycostm easuresthecostofanyeconomicchoiceintermsofthenextbestalternative
Theopportunitycostofanitemiswhatyougiveuptogetthatitem
Theopportunitycostofaparticularchoiceformsanimportantpartofanindividualsdecisionm akingprocess
Economicsisbasedontheproblemofs carcity,andthats carcityforcesustom akechoices
Consumergoods
Aconsumergoodisanygoodthats atisfiesconsumerwants
Consumerdurablegoodsaretheonesthatlastalongperiodoftime
Nondurablegoodsaretheonesthatlastas horttime
Consumerservicesarethosethatcanonlybes atisfiedbys omeonedoings omethingforus
Theactionofaconsumergoodbeingpurchasedisknownasconsumption
Capitalgoods
Capitalgoodsarem anmaderesourceswhichhelptoproduceothergoodsands ervices
Theactionofpurchasingacapitalgoodisknownasinvestment
Publicgoods
Publicgoodsaregoodsprovidedbythgovernmentforpublicuse
Thesegoodsareprovidedbythegovernmentduetothefactthatnootherindividualororganisationwillproduceit
Economicagents
Individualsa
s inglepersonwhom akesdecisions
Householdspeoplewhom akedecisionsbasedonthemandotherpeople
Organisationslargegroupsofpeoplewiths imilarinterests
Resourcesareusedinam annerthatbenefitsus,buttheyareallfinite
Them oreweconsumetoday,thelessthereisforustoconsumetomorrow.Thesearescarceresources,aseventuallythey
mayrunout
Whenm orepeoplewantagoodthanthereisenoughtogoaround,weareleftwiththeproblemofscarcity
Scarcityisthefundamentaleconomicproblemofhavings eeminglyunlimitedhumanw antsinaworldoflimitedresources
Theproblemofs carcityistrueforalmostallresources
Peopleandfirmsproduce,exchangeandconsumegoodsands ervicesinaneconomy.Everym ustdecidehowandhowm uch,land,
labour,capitalandenterprisetoassigntodifferentproductiveuses,thisiscalledr esourceallocation.
Aneconomicsystemishowaneconomydecideswhatgoodstoproduce,howtoproducethemandwhotoproducethemfor

Peoplehaveaproblemdecidingexactlywhatgoodsands ervicestom ake

Afterthetoughdecisionofwhattoproducewehavetodecidehowtom akethesegoods
Whowillgetthesegoodsands ervices
Differenteconomicsystems
Marketeconomicsystem
Alldecisionsaretakenbyprivatefirms
Plannedeconomicsystem
Inaplannedeconomym ostdecisionsaretakenbythepublicsector
Mixedeconomicsystem
Inam ixedeconomydecisionsaretakenbyboththepublicsectorandtheprivatesector
Marketfailuresoccurwhenfreem arketsfailtoproducegoodsors ervicesthatareworthwhileandwhenthedecisionsofproducersor
consumersresultinwastefulorharmfulactivities
Publicexpenditureincludesthes pendingofallgovernmentownedandgovernmentfinancedorganisations
Capitalexpenditureincludesinvestmentsinnewroads,s choolsandotherproductivem anmaderesourcesthatcanincreasethe
capacityoftheeconomytoproducegoodsands ervices,itcanhelptoboostoutputandeconomygrowth
DemandandSupply
Demand
Whatisdemand?
Demandisthewantorwillingnessofconsumerstobuygoodsands ervices.Tobeane
ffectivedemand
consumersm usthaveenoughm oneytobuythegoodsands ervicestheyneedandwant
DemandCurves
Theamountofagoodconsumersarewillingandabletobuyisknownasthequantitydemandedofthatproduct
Thereisaninverserelationshipbetweenpriceandquantity
Anextensionofdemandreferstothewayinwhichdemandriseswithafallinprice
Acontractionindemandreferstothewayinwhichdemandcontractswhenpricerises
Thingsthatcancauseashift
Changesinconsumersincomes
Changesintaxesonincomes
Thepriceandavailab ilityofothergoodsorservices
Changesintastes,hab itsandfashion
Individualdemandisthedemandofjustoneconsumer,andthemarketdemandis thetotaldemandofaproductfromall
itscustomers
Supply
Whatissupply?
Supplyistheamountofagoodoras ervicefirmsarewillingtom akeands ellatdifferentprices,q
uantitysuppliedis
theamountofgoodproducersarewillingandabletoproduceands elltothem arket
Themarketsupplyofaproductwillconsistoftheamounts uppliedbyalltheindividualproducerscompetingto
supplythatproduct
Anextensionofsupplyreferstohows upplyincreaseswiththeriseinthepriceofaproduct
Acontractionofsupplyreferstohows upplycontractswiththeefallinthepriceofaproduct
Thingsthatcancauseashift
Changesinthecostofproduction
Changesinthepriceandprofitab ilityofothergoodsorservices
Technologicaladvance
Businessoptimismandexpectations
Glob alfactors
Anothernameformarketpriceisequilibriumpricebecauseitisthepriceatwhichtheamounts uppliedequalsors atisfiesthe
amountdemanded
Whendemanddoesnotequals upplyitiscalledasdisequilibrium
Thisisthepricemechanismandhowitworksinafreem arket,theforcesofdemandands upplyestablishthem arketpriceofa
product,changesindemandands upplywillcausechangesinprices
Money
Hastobedurable
Hastobescarce

Hastobedivisible
Hastobeacceptable(itstokenmoney,itsactualvalueisless)
Hastobeportable
Moneyisamediumofexchange
Wedontneedtolookforapersonwhowantswhatwehaveandwewantwhattheyhave
Moneyisameasureofvalue
Usingm oneyhelpsthoseproducersandconsumersengagedintrsdetoavoidtheproblemsoffixingpricesofgoodsin
termsofallothergoods
Moneyisastorevalue
Itdoesnttaketoom uchs pace
Moneyisameansofdeferredpayment
Creditisawaytogetthingswhenneededandthenpayforthemwhenyouhavethem oney