Introduction to Economics Chapter 1 Introduction to Economics

Introductory Definitions A need is immediate, e.g. food and shelter, which we need to survive. A want is anything in excess of needs that is not necessary for our survival, e.g. a foreign holiday or a new car. Opportunity cost is the cost of foregone alternatives (choice). Economics is a social science that studies the allocation of scarce resources that have alternative uses.

Deductive Inductive Step 1: Start with statements (hypotheses) that we believe are true. Step 2: Apply this statement to a situation. Step 3: Arrive at a conclusion. This analysis will be correct if the theory was accurate. Step 1: The researcher collects data. Step 2: The researcher spots a pattern. Step 3: A conclusion is drawn from this pattern, which then becomes an economic law.

The Four Factors of Production Land: Anything provided by nature that helps in the production of wealth, e.g. farm animals. Labour: The human effort involved in creating wealth. Capital: Anything man-made that assists in the production of wealth. Enterprise: The factor of production that takes the initiative and bears the risk involved in setting up a business to produce goods.

Markets Factor markets Intermediate markets Final markets

Economic Systems A free enterprise economy is where private businesspeople make the decisions on the goods and services to be produced, e.g. the US (this is sometimes known as a capitalist system). A command/centrally planned economy is where the government makes the decisions on the goods and services to be produced, e.g. Cuba and North Korea (this is sometimes known as a communist/socialist system).

Economic Systems (Continued) A mixed economy is one that incorporates elements of both central planning (government involvement) and private enterprise in its economic system, e.g. Ireland – RTÉ (government owned) and Dunnes Stores (privately owned)

Economic Concepts Income is a flow of wealth because it is received regularly for providing a factor of production. Wealth is the total value of all assets owned by an individual or group of people. Welfare is the overall condition of well-being of an individual or group of people.

Branches of Economics Microeconomics studies how an individual producer (one firm) and a consumer make decisions and attempt to solve their economic problems. Macroeconomics deals with aggregates (totals) in an economy.

Economic Statements When factual statements are made, e.g. unemployment is 10%, these are known as positive statements because they state what is or was and can be confirmed or denied by the analysis of the facts. Normative statements go beyond the facts and state what ought to happen (value judgements), e.g. the government should spend more money and increase the national debt to create employment. Here, the economist is giving us an opinion on their beliefs.