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Economics: Intro to economics - Coggle Diagram
Economics: Intro to economics
Micro
9 Central concepts:
Scarcity:
When infinite wants are met with finite resources.
This is the basic economic problem – we can’t get enough of what we want.
Consumers don’t have infinite income – how do they decide what to buy?
Governments don’t have infinite income – how do they decide what to spend on?
Choice:
We need some way of deciding how to use the finite resources.
Which will give me the most satisfaction? Which is the easiest?
Which will lead to the most desirable outcome for society?
Efficiency:
Minimising resource waste, and attempting to produce the optimal allocation of goods and services from society’s point of view.
Are consumers buying goods and services that are in society’s best interests?
Could the government use some of this income to help in this decision-making?
Equity:
Fairness.
Is the distribution of income (and of products) fair for everyone?
Should the government use some income for unemployment benefits? To make education free for everyone?
Economic well-being:
The quality of life of the population.
Includes financial security, the ability to meet basic needs, freedom of choice etc.
Are consumers buying goods and services that maximise their own quality of life?
Could the government use some of this income to help – the NHS?
Sustainability:
Present generations consuming/producing products without compromising the ability of future generations to meet their own needs.
Does the government need to intervene to force firms to consider their environmental impact?
Change:
The world is constantly changing, and so the choices we make also change to accommodate this.
Technological advancement has changed the way firms choose to produce output
Economic circumstances change government policy-setting (Covid-19)
Interdependence:
The actions of one economic agent will have an impact on multiple other economic agents.
When consumers buy certain products, the NHS is negatively impacted.
When the government spends more, it must collect revenue from somewhere…
Intervention:
The government’s attempt to manipulate the way the individuals behave.
Sugary drinks tax to improve efficiency.
Providing free education to improve equity and economic well-being
The government’s attempt to manipulate the way the individuals behave.
Sugary drinks tax to improve efficiency.
Providing free education to improve equity and economic well-being
Macro:
Production Possibility Curve: shows the maximum combination of goods and services that an economy can produce when all of its resources are fully employed, but the state of technology is fixed.
The curve assumes that:
There are two types of good that the economy can produce.
When we are on the curve, all resources are fully employed (no workers are unemployed and they are all used to their maximum efficiency)
On a given PPC, the quantity and quality of resources (including the state of technology) is fixed.
Opportunity Cost: the cost of making an economic choice in terms of the next best alternative forgone
Scarcity and choice:
Planned Economy: The government answers all of these questions. It allocates workers to certain industries, tells them how to produce products and then collects all goods and services and distributes them. There is no need for money.
Positives: In theory, the government will make the best choices for society. Nobody will starve (the system is fair) and unhealthy goods will not be produced, and the government will choose not to pollute (sustainability).
Negatives:
Poor planning means resources will be misallocated (inefficiency)
No incentive to work hard as no reward (inefficiency)
Government corruption
No freedom of choice
Free market economy: All resources are allocated based on price. Consumers are left to make their own choices about what to buy. Producers will produce whatever can make them a profit, and choose themselves how to produce
Negatives:
Sometimes people make stupid choices on their own: they over-value cigarettes, fatty foods etc.
Education and healthcare only accessible for the rich?
Pollution may cause sustainability issues
People with chronic illnesses who can’t work have no support. The system is unfair
Positives:
Very efficient: if people want something enough, they will pay a lot for it, which will encourage firms to produce it for profit.
Very efficient: people have to work hard to earn income – they cannot rely on government support.
Freedom of choice.
3 basic economic questions:
What to produce?
How to produce?
For whom to produce?
Rationing Systems:
Price – whoever is willing and able to pay the highest amount gets the chocolate bar
Central planning – a “government” intervenes to decide who needs the chocolate bar the most, or to split the chocolate bars up equally amongst the whole class
Lottery – draw five names out of a hat
Fight – the strongest (or most aggressive) person gets the chocolate bar
Queue – my office opens at 8am tomorrow, and the first five people there get a chocolate bar.
Scarcity:Scarcity occurs when there are finite resources, but infinite wants and needs.