Tiêu đề 1. AS Economics - Notes.pdf ✅

AS / MICRO — [NOTES] — CHAPTER 1 AATIK TASNEEM | AS / LEVEL: ECONOMICS (9708) | 03041122845 1 TOPIC 1: BASIC ECONOMIC IDEAS Lecture 1 Economics Definition: It is a social science that studies human behavior between unlimited wants and limited resources with their alternative uses. In other words, it just simply tells us how we can make the best use of what we have in order to satisfy our needs and wants. There are TWO broad divisions: Microeconomics Macroeconomics This deals with individual decisions taken by household or firms in a particular market. They examine individual variables at the level of aggregate economy 1. BASIC ECONOMICS PROBLEM/PROBLEM OF SCARCITY Definition | Basic Economic Problem: The resources are limited in this world whereas wants are unlimited which leads to the problem of scarcity or the basic economic problem. This problem is faced by every economy as to how to allocate the scare resources. Limited Resources + Unlimited Wants = Scarcity 1. Limited Nature of Resources Definition: Resources are all those materials and efforts which can be used to produce goods and services. E.g. agriculture, farmers, machines etc. Resources are of TWO types: 1. Unlimited or free resources / Free Goods: These are unlimited in supply e.g. sunlight, sea water, air rain etc. These resources are not much of a concern for economists. 2. Scarce resources / Economic Good: These are limited in supply. E.g. machines, building, agricultural area, oil, wheat etc. 2. Opportunity Cost Definition: People are forced to make choices due to the presence of the basic economic problem mentioned above. Opportunity costs is defined as the next best alternative forgone. In simpler terms, the sacrifice by an individual or organization while giving preference to one product to the other is known as the opportunity cost of a particular decision. Remember that this is made by all economic decision makers: Consumers, businesses and government. Example: (1) Consumer – An individual has $1000 and he/she can either buy a laptop or a smart phone. If the individual chooses the laptop the smart phone becomes the opportunity cost. (2) Businesses – A business has $1million. It can either spend it on expansion to a new country or invest in research and development. If the businesses choose to invest it in expansion, the research and development becomes the opportunity cost. (3) Government – A government has two options either to build roads or building schools in the country. If the government chooses to build roads, developing schools would become the opportunity cost.
AS / MICRO — [NOTES] — CHAPTER 1 AATIK TASNEEM | AS / LEVEL: ECONOMICS (9708) | 03041122845 2 3. The THREE basic economic questions All the three economic agents (Individuals, Firms and Government) try to answer the following three basic economic questions: Question Description 1. What to Produce? What goods and services should be produced and how should the resources be allocated? 2. How to Produce? How should the economic resources be used to produce the goods and services 3. For whom to produce? How should the goods be allocated among the population? Understanding the target population. 4. Choosing at the margin Definition | Margin: This implies that economic decision makers will take a decision to compare the benefits of an extra activity to the cost of the extra activity. If the marginal benefit exceeds the marginal cost you go ahead with the decision Marginal Benefit > Marginal Cost à Go ahead with the decision Marginal Benefit < Marginal Cost à Do not take the decision 5. The time dimensions Time Dimension Description 1. Short Run This is a time period where firm is able to change some usually one and not all factor inputs. Example: Labor might be variable but capital and land might be fixed. 2. Long Run This is a time period a from can change all factors of production. This makes them more flexible. Example: Hire more labor, more capital etc. 3. Very Long Run This is when the entire industry/market may be able to adjust. This is because not only that all factors of production are variable but also key inputs like technology, government regulation and social norms are variable. 2. FACTORS OF PRODUCTION Definition: These elements are required to carry out a business activity are collectively known as the factors of production. These include: Factor Description 1. Land It represents all the natural resources which are consumed during the business activity, e.g. plains, seas, mines etc. (Rent) 2. Labor The term refers to any kind of physical or mental human effort. E.g. carpenters, doctors, etc. (Wages and Salaries) 3. Capital The term refers to the manufactured resources required in the production process. E.g. machinery, tools, equipment, vehicles etc. (Interest) 4. Enterprise Also known as entrepreneurship. This is the skill and risk-taking ability of the person who brings the other three resources or factors of production together to produce a good or service. They are innovate to promote efficiency For example, the owner of a business. (Profits and Dividends) Note: These factors of production tend to vary from economy to economy. Agricultural economies tend to reply more on the primary output whereas industrialized economies tend to reply on the secondary output.
AS / MICRO — [NOTES] — CHAPTER 1 AATIK TASNEEM | AS / LEVEL: ECONOMICS (9708) | 03041122845 3 3. POSITIVE AND NORMATIVE STATEMENTS Definition | Positive Statements: This is a statement the is based on empirical evidence or facts/actual evidence. This can be true or false. These statements can be tested. This tells us what it is. Example: 1. A fall in supply of petrol will lead to an increase in its price... 2. An increase in tourist numbers in the Maldives will create more employment... 3. An increase in taxation on cars will result in fewer cars being sold... Definition | Normative Statements: This is a statement that have an opinion or value judgement. This tells what should happen. These statements cannot be tested. The above statements can become normative statements, for example, by adding: 1. ... and this should be beneficial for the environment. 2. ... and therefore the government of the Republic of Maldives should do everything it can to help promote this industry. 3. ... and this should reduce traffic congestion. 4. SPECIALIZATION AND DIVISION OF LABOR Definition | Specialization: The process by which individuals, firms and economies concentrate on producing those goods and services where they have an advantage over others. The aim is to concentrate on what they are best at as a result the production of the products go up. Specialization refers to performing a specific task of the whole production by an individual worker, or producing one of few products rather than a number of goods and services by a firm, region, or country. Definition | Division of Labor: This is known as specialization at individual level. When the whole production process is divided into several individual tasks and each task is carried out by a single worker. Advantages and Disadvantages of Specialization/Division of Labor [Economy] Advantages Disadvantages 1. Efficiency: Specialization results in efficient use of factors of production. This results in higher GDP. 2. Labor Productivity: Labor becomes more productive since due to repetition of jobs their skills are enhances. This leads to greater output in lesser time. 3. Increase productive capacity: Specialization helps to shift the PPC outwards. However, the shift is usually pivotal because the product the county is specializing in will have a greater increase in output. 4. Economies of Scale: Since production increases therefore firms enjoy larger economies of scale. These cost cuts can be passed on to consumers in the form of lower prices. Hence reducing inflation. 5. Improved Competitiveness: This gives the firm a competitive advantage in the international market. A competitive advantage results in higher exports, appreciation in currency, higher AD, and improved standard of living. 1. Overspecialization: This is a situation where the country specializes in a particular product and this makes its economy vulnerable. Example: Economy’s like Iran that are highly dependent on oil export, a trade embargo by the west on oil results in a major economic collapse. 2. High labor turnover: Since the workers are specialist they will continuously be searching for better paid jobs. This result in companies have to rehire which increase the cost. 3. Low Labor mobility: Since the worker is only skilled in a particular field it would be hard for him to understand other function of the business. This makes the labor force inflexible. 4. Lack of variety of consumers: Consumers have less choice since the company specializes in only one type of product. This reduces international competitiveness. 5. Cost: The cost to employ specialist workers is high. This can lead to expensive products being developed by the firm, ultimately leading reducing profits.