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