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Introduction to Economics
From ZuluNotes - Free Leaving Cert Notes
| Introduction to Economics | ||
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| Subject: | Economics | |
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| Level | H&O | |
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Economics is a social science which studies human behaviour and how the scarce resources of the world, which have alternative uses, are distributed in attempting to satisfy the infinite needs and wants of mankind. Economic laws are not statements of fact, an economic law is a statement that in a given set of circumstances, people will probably act in a certain way.
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Methods of Economic Analysis
- The Deductive Method: This involves reasoning from the General to the Particular. For example, as the price of a good rises people will generally buy less of that particular good. Therefore we can deduce that if brand X beer raises it's price, it's sales will drop.
- The Inductive (or Empirical) Method: This involves reasoning from the Particular to the General. For example, by observing the behaviour of many consumers who reduce their demand for a product when prices, we can form the general conclusion that as price rises, demand falls.
Micro/Macro
The science of economics is divided into two main areas of study; Microeconomics and Macroeconomics
- Macroeconomics: This is concerned with economics on a small scale. It involves studying the behaviour of individual units within the economy, such as the consumer, the producer, the supplier and the factors of production
- Macroeconomics: This is concerned with studying the economics system as a whole. There for it is concerned with such areas as government policy, inflation, employment, national income, international trade, economic growth etc.
On the leaving cert course microeconomics is considered the easier portion of the course. The exam itself usually has 4 micro and 4 macro questions, of which students have to do 4. Because of this many people only study micro, but this is often advised against as most years on of the micro questions is particularly difficult, to encourage people to chose a macro question.
The Consumer
Consumers are the individuals who buy gods. They earn their incomes by supplying the factors of production, Land, Labour, Capital, and Enterprise
- Consumer income: The ability of a consumer to buy goods. This is limited
- Consmer choice: Once a consumer's needs are satisfied, they are faced with a vast range of products to chose from.
- Consmer rationality:' Consumers are said to act rationally, i.e. they purchase goods that give them the most satisfaction (Utility)
The Law of Diminishing Marginal Utility
This law states that as person consumes more and more of a particular comoddity, eventually a point will be reached where the marginal utility gained from the last unit consumed will begin to decline.
General terms/definitions
- Economic Goods, by definition must provide utility, command a price, and be transferable. For example, good health is not an economic good as it is not transferable.
- Marginal Utility measures the change in satisfaction gained from each additional unit consumed.
- Opportunity Cost refers to the sacrifice of the next most desired alternative, i.e when a consumer is forced to make a choice between two products he/she would like because of limited income we refer to the product sacrificed as the conumer's opportunity cost. E.g. I want a pint and a packet of peanuts, but I only have €4. Obviously I chose the pint, so the peanuts are my opportunity cost.
