1. Economic Framework

2. Economics
Is the study of how individuals, businesses and governments with limited resources make choices.

3. Resources
Are things such as land, machinery, workers, materials, oil, crops, money.
They are used in the production of goods and services.

4. The Factors of Production
Are those scarce resources which we use to produce wealth.

5. 4 Factors of Production
Land
Labour
Capital
Enterprise

6. Land All things supplied by nature.
Eg. water, natural gas, oil, coal, minerals, trees……..
The payment/reward for land is rent.

7. Labour The human element in the production process.
Eg. employees, builders, carpenters, factory workers…..
The reward for labour is wages.

8. Capital All man-made things that help produce goods.
Buildings, machinery…
The reward for capital investment is interest.

9. Enterprise Taking the risk to sell new product/idea..
Eg. Bill Cullen, Richard Branson…
The reward for enterprise is profit.
The risk of enterprise is loss.

10. Example: Bread Land Wheat Labour Farmer, baker Capital
Tractor, oven, bakery
Enterprise
Cuisine de France

11. Needs Are essentials required for survival. Basic needs.
Food, shelter, clothing.

12. Wants Are anything in excess of our needs. Things we can live without.
TV, holidays, i-pod………………

13. Opportunity Cost
The opportunity cost is the sacrifice of the item you must do without when you have to make a choice between two items you want to produce or purchase.

14. Opportunity Cost (continued)
Example
I have €2.00.
I can buy ice-cream or Pringles.
I choose ice-cream.
Financial cost = €2.00
Opportunity cost = Pringles.

15. Economic System
Is how a country makes decisions about their factors of production.
An Economic System is important
to ensure the economy is controlled and run properly.

16. Centrally Planned Economy
Communism
All industries are owned & controlled by the government.
Eg China

17. 2. Free Enterprise Economy
Capitalism
All industries are owned by private entrepreneurs.
Eg. USA
(is the closest to Free market model)

18. 3. Mixed Economy
Some industries are controlled by the government & some are controlled by private entrepreneurs (business people).
Eg. Ireland

19. Economic Growth
Occurs where there is an increase in the amount of goods and services produced in a country from one year to the next.

20. Advantages of economic growth
Increase in standard of living
More employment will be create
More money available for social welfare, health and education

21. Explain GNP Gross National Product GDP Gross Domestic Product
The total amount produced in a country.
+ = Growth
- = Recession

22. Formula
Change X 100
Original

23. Example 1 2009 100 million produced in Ireland
5 million X 100 = -5%
100 million
Recession

24. Example 2 2009 200 million produced in USA
20 million X 100 = + 10%
200 million
Growth

25. Inflation
Is an increase in the cost of living/prices from one year to the next.
It is calculated by the Consumer Price Index (CPI).

26. Consumer Price Index Is the measure of inflation.
The Central Statistics Office (CSO) conducts a survey of prices every few months.
This tells us if prices are rising or not.

27. What causes inflation? Too much money in circulation.
Interest rates too low.
Increase in oil prices.

28. ECB The European Central Bank tries to control inflation.
See Inflation Monster DVD

29. Formula for calculating rate of inflation
Increase in price x 100%
_______________
Original Price

30. Example Cost of living in 2007 is €9000
Rate of Inflation = € x100%
________
€9000
=6.6%

31. Benefits of low inflation
Economic growth is aided
Prices are stable
Wage demands are lower

32. Deflation Is when prices are falling.
While this may seem good it is not.
Consumers will delay spending in case prices fall further.
This may lead to unemployment.

33. Interest Rates Is the cost of borrowing.
Irish rates are controlled by the European Central Bank

34. Benefits of low interest rates
Mortgages and loans will be cheaper.
Encourages new investment.
Increased consumer spending.

35. Disadvantages of high interest rates
Discourages new investment.
Reduces consumer demand.
Increases business costs.