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The foundation of Economics - Coggle Diagram
The foundation of Economics
understanding the Nature of Economics
problem of scarcity and sustainability
opportunity cost
the best next alternative must be given up or sacrificed in order to obtain something
Free goods
= good that is not scarce , 0 opportunity cost.
economic goods
scarcity
refres to situation in which available resources , or factors of production are finite, where as wants are infinite
sustainability
refers to maintaining the ability of the environment and the economy to continue produce and satisfy the future needs and wants
choice
the ability of a consumer or producer to decide which good, service or resource to purchase or provide from a range of possible options
factor of production
Labour
Physical and mental effort that people contribute to the production of the goods and services
Capital
Also known as physical capital - man made FOP used to produce goods and services
Financial capital
investment in financial instruments, like stocks, bonds and funds
natural capital
enviromental capital - extended version of the "land" FOP. everything included in land + natural resources that occur naturally such as air, biodiversity and ozone layer.
human capital
skills, abilities and knowledge acquired by people, as well as good level of health which make them more productive
physical capital
Entrepreneurship
-Management- special human skill possessed by some people, involving the ability to innovate by developing new ways of doing things, take risks, and seek new opening to run the business.It organises the other three FOP
land
All natural resources including all agricultural and non-agricultural land, as well as everything that is under and above the land (minerals, oil, water)
KEY CONCEPT
Scarcity
Choice
Efficiency
Equity
Economic Wellbeing
Sustainability
Change
interdependence
Intervention
Normative economic
It is based on beliefs or value judgements about what should happen, about what is good or bad, about what is right or wrong
Example : Policy recommendation about what government should do "The gov should spend more money on building school"
Role of normative economics
value judgement in policy-making
Identify the important of economic problems that should be addressed and recommend policies to solve
Equity and Equality
Equity which refers to fair while equality is the state of being equal
Positive Economics
It is used to describe, explain, or predict economic events by hypothesis, theories and models.
Example : Predict future event - "unemployment will increase next year"
Role of positive economics
The use of empirical evidence
Refer to real-world information, observation and data that we acquire through our sense and experience - Rely on Branch of statistics (econometrics)
The use of logic
Method of reasoning where it involves making statement which is true
The use of models
Models are used to illustrate theories and describe connections between variable
The importamce of refutation
Refute means contradict it, disprove or to show it to be false, It is the ideas where it must be possible to refute hypothesis or theory
The ceteris paribus assumption
An assumption that dies not say anything happen in real world.
The use of laws
Describe an event in a concise way. Laws are based on the theories and are known to be valid
Theories in relation to hypothesis
A theory is a general explanation of a set of interrelated events usually based on several hypothesis that have been tested successfully.
The use of hypothesis
An educated guess, usually indicating a cause-and-effect relationship about an event.
Basic Economic Questions
For whom to porduce
distribution of output and income
the amount of output people can get depends on how much of it they can buy, which in turn depends on the amount of income they have
What/how much to produce
*Market method and command method
Market vs gov intervention
Economic system
mixed economy
mixed economy combines elements of both free-market and planned economies. It includes a mixture of public and private ownership of resources and businesses. The government intervenes in the market to regulate and provide public goods while allowing private enterprises to operate freely in other areas.
planned economy
government controls and regulates all major aspects of the economy, including production, distribution, and pricing
free market economy
free market economy is one where decisions regarding production, pricing, and distribution are driven by the forces of supply and demand
How to produce
resource allocation
assigning available resources, or factors of production
understanding the world by the use of model
Model
Simplified representation of something in real world. Showing only important aspect of the investigation and ignore other detail.
simplified representation
show only important aspect and ignore other details
Something in Real World
Production Posibilities
Definition
: all combination of maximum amount of 2 goods that can be produced in an economy , given that economy has
fixed (unchanging) quantity , fixed quality of resources and fixed technology
PPC CURVE
base on textbook page 16 figure 1.1 , point A, B, C, D, E are fully utilised the resources while point F underutilised and point G is impossible ( because of the scarcity the economy cant produce outside the PPC
shape of the PPC
Curve PPC
increasing opportunity cost
Straight line PPC
constant opportunity cost
economic growth using PPC curve model
LOOK AT PAGE 18 TEXTBOOK
POINT A
What happens?
The point on the PPC moves from inside the curve (Point A) to closer to the curve (Point B).
Why?
This indicates a reduction in unemployment and inefficiency in production. Resources that were previously underutilized (e.g., labor or capital) are now being used effectively, resulting in an increase in actual output, though the economy remains within its current production capacity.
POINT B
What happens? The PPC shifts outward (from PPC₁ to PPC₂ and PPC₃), representing an increase in potential output. Points A, B, and C reflect production along increasing levels of the curve.
Why? This shift occurs due to, increase resource quantity or quality, and technological advancement
POINT C
What happens? The PPC shifts inward (from PPC₁ to PPC₂), indicating a reduction in the economy's capacity to produce goods and services.
Why? result from natural disaster or war(deterioration in resource quality) , political instability and depreciation of infrastructure.
POINT D
What happens? The PPC shifts outward unevenly, with one axis growing more significantly than the other (e.g., more growth in the production of X than Y).
Why? This reflects specialized growth where resources or technological improvements disproportionately benefit one sector of the economy. For example:
If technology improves in agriculture (good X), more agricultural goods can be produced without affecting other sectors as much.
Investments may prioritise certain industries, leading to imbalanced growth.