Economics 1
Economics is the study of how we make the best possibly use of scarce resources in order to satisfy the requirements of as many people as possible
requirements = needs and wants
needs
wants
three basic needs food, clothing and shelter
may have needs depending on circumstances
essential items we require to survive
items we would like to have in addition to our needs
meals in restaurants, TV and hi-fi
resources = items that are available to us to produce goods and services, these are called factors of production
Factors of Production
products produced and services supplied are called wealth
enormous amounts of resources are need to make items and supply services
four headings for factors of productions
Land
Labour
Capital
Enterprise
anything provided by nature that helps produce goods and services
payment made to people who supply land is rent
any human effort that helps to produce goods and services
payment for labour is wages
is anything that is made by humans that is then used to help produce other goods and services
payment is interest
is that special form of human activity that organises the other factors of production and bears the risk involved in production
features
supply enterprise called entrepreneurs, arrange financing and run businesses
coordinate the other three factors into productive team
payment is profit suffer a loss if they fail
Economic Systems
must decide what goods and services produced, how to produce these and who is to benefit from production
Free enterprise system (capitalism
all resources owned by private individuals or companies, government plays no role in this system e.g. America
Centrally Planned systems (communism)
all resources are publicly owned, control all economic activity e.g. North Korea
Mixed Economics
allow most economic decisions to be made by private sector, government intervenes to ensure supply of essential goods and services, sometimes involve in planning future development of economy e.g. Ireland
Costs
financial cost = amount of money to pay for good or service
opportunity cost = is the item not bought when deciding between buying two items
Inflation
is the increase in the general level of the price of goods and services from one year to the next
formula for measuring rate of inflation is increase over original multiplied by 100
official measure of inflation is consumer price index (CPI)
causes
increase in production costs, manufacturer needs more money so raises the prices
cost of importing goods increases
the demand for goods is greater than supply of goods, people want more and manufacturers are fighting for business and drive up prices
increase in indirect taxes, VAT increases
effects
cost of living increases
demands for wage increases grows
discourages savings because people spend before money value drops
it causes export prices to increase
causes people to buy cheaper imports than homemade goods
deflation is the decrease of general level of the price of goods or services
Gross Domestic Product / Gross National Product
Gross Domestic Product (GDP) is the total amount of goods and services produced in an economy in one period
measured annually and in money values
Gross National Product (GNP) is the gross domestic product less profits sent out of the country by foreign-owned companies located in the country, plus profits returned to the country by local firms based abroad
distinction is very important, GNP is our national income
Economic Growth
occurs when more goods are produced in a country one year than were produced in the previous
negative economic growth occurs when the amount of goods and services produced one year is less than the amount produced the previous year
benefits
improves standard of living
creates employment
improves the government's finances
alleviates poverty
Recessions
the CSO measures amount of goods and services produced on a quarterly basis, if less goods and services are produced in two consecutive quarters economy in recession