1. CHAPTER 13 ECONOMICS 1: INTRODUCTION 01/08/2019
This is the Title Slide
R. DELANEY

2. R. Delaney
Economics
Economics is the study of how we make the best possible use of the world’s scarce resources in order to satisfy the requirements of as many people as possible.
These requirements refer to the needs and wants of people.
The resources refer to the factors of production.

3. R. Delaney
Needs and Wants
Needs are the essential items required for survival in life, i.e. basic food clothing and shelter.
Wants are any items we would like to have in addition to our needs.

4. R. Delaney
Factors of Production
The factors of production are those resources that help to produce a product or provide a service. There are four categories:
Land
Labour
Capital
Enterprise

5. Economic Systems Free-enterprise system:
R. Delaney
Economic Systems
Free-enterprise system:
All resources (the factors of production) are owned by private individuals or by companies and used for their benefit only
Centrally planned system:
All resources are publicly owned and the government controls all economic activity
Mixed Economy:
Most of the major economic decisions to be made by the private sector, but the government intervenes to ensure the supply of essential goods to everybody.

6. Financial and Opportunity Costs
R. Delaney
Financial and Opportunity Costs
The financial cost of anything is the amount of money that is paid for it.
The opportunity cost of anything is the item that must be done without when we have to make a choice between two or more actions.
The government has €2m that can be spent on a new school or it can be spent on new medical equipment. If the government builds the new school the opportunity cost of the school is the medical equipment.

7. The increase in prices in year 2 X 100
R. Delaney
Inflation
Inflation is the increase in the general level of the price of goods and services over a period of time.
The rate of inflation is the percentage by which the general level of prices increases. It is usually shown as an annual rate of inflation.
The formula used to measure inflation is:
The increase in prices in year X 100
The level of prices in year 1

8. Causes and Effects of Inflation
R. Delaney
Causes and Effects of Inflation
CAUSES
An increase in the cost of producing goods.
The demand for goods is greater than the supply of goods.
The cost of importing goods increases.
Increases in indirect taxes.
EFFECTS
It increases the cost of living.
It causes demands for wage increases.
It discourages saving.
It causes the price of our exports to increase.
It may cause Irish people to buy cheaper imports.

9. R. Delaney
GDP and GNP
Gross domestic product (GDP) is the total amount of goods and services produced in an economy in one period.
Gross national product (GNP) is the GDP 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.
Both GNP and GNP are normally expressed in money terms.

10. R. Delaney
Economic Growth (1)
Economic growth occurs when more goods are produced in a country one year than were produced the previous year.
Example 1
Year 1 Number of goods produced = €10 each, therefore GDP = €10m
Year 2 Number of goods produced = €10 each, therefore GDP = €10.1m.
In this example economic growth has occurred because the quantity of goods produced in year 2 has increased.

11. Economic Growth (2) Example 2
R. Delaney
Economic Growth (2)
Example 2
Year 1 Number of goods produced = €10 each. Therefore GDP = €1m
Year 2 Number of goods produced = €11 each = GDP €1.1m
In this example economic growth has not occurred because the quantity of goods produced in year 2 has not increased.

12. Benefits of Economic Growth Negative Economic Growth
R. Delaney
Economic Growth (3)
Benefits of Economic Growth
It improves the standard of living.
It creates employment.
It improves the government finances.
It alleviates poverty.
Negative Economic Growth
Negative economic growth occurs when the amount of goods and services produced one year is less than the amount produced the previous year.
Economic Recession
This happens when less goods and services are produced in an economy in two consecutive quarters