Economics (CIA4U). Introduction to Economics -Economics is a social science that studies how...
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![Page 1: Economics (CIA4U). Introduction to Economics -Economics is a social science that studies how individuals and organizations in society engage in the production,](https://reader030.fdocuments.in/reader030/viewer/2022032521/56649d575503460f94a36319/html5/thumbnails/1.jpg)
Economics (CIA4U)
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Introduction to Economics
- Economics is a social science that studies how individuals and organizations in society engage in the production, distribution, and consumption of goods and services
- the task is to use scarce economic inputs in a way to best satisfy the needs and wants of the people of that society
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Scarcity
• wants are unlimited• resources however are limited
• land, labour, capital, entrepreneurship
– known as “factors of production”
• this necessitates choice• choice involves tradeoffs
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Opportunity Cost
• the cost of choosing one thing is giving up another
• the cost of the most expensive alternative not chosen becomes the opportunity cost
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• Two types of costs:
•explicit costs– out of pocket costs (dollar value)
•implicit costs– value of resources that could be used elsewhere
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Three Basic Decisions All Economies Must Make
1. What to produce?
- consumption goods - do not help to produce future goods
- capital goods - help in the production of future goods
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2. How to produce it?
- How to combine the scarce resources?
- seeking efficiency (getting the most output per unit of input)
- this is a question of production methods - manual labour or automation
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3. Who gets what?
- this is a question of distribution
- to each goes what they can afford
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How these basic decisions are
made:
Tradition- a group or community owns the resources
- decisions are made according to tradition
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Command System- the government decides the three basic questions
Market System- economic decisions are decentralized- individuals make the decisions
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The Production Possibility Curve
The PPC shows the maximum amount of alternative combinations of goods and services that a society can produce
- it assumes only two commodities are being produced; resources are fixed and fully employed; productivity is fixed; technology is fixed
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The PPC depicts:- a limited productive capacity (scarcity) - the concept of opportunity cost
Note that the cost of transforming the production of food into that of computers is steadily increasing- this is because non-homogenous resources are not equally suited to the production of both and some factors of production are more efficient in one industry than in the other
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• What trade-offs are involved?
• Why is the PPC concave, or bowed out, from the origin?
• What does a point inside the PPC illustrate?
• What is the significance of a point outside the PPC?
• Under what conditions can a point outside the PPC be reached?
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Absolute Advantage andComparative Advantage
ABSOLUTE ADVANTAGE - One nation can produce more output with the same resources as the other
COMPARATIVE ADVANTAGE - One nation can produce a good at a lower opportunity cost than the other
ex) lawyer and secretary when the lawyer can type faster than the secretary
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Determining ComparativeAdvantage (using the output method)
1. Which nation has an absolute advantage in producing CDs?
2. Which nation has an absolute advantage in producing beef?
3. Which nation has a comparative advantage in producing CDs?
4. Which nation has a comparative advantage in producing beef?
5. Should Japan specialize in CDs or beef?
6. Should Canada specialize in CDs or beef?
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The Circular Flow of Resources,Goods, Services and Money Payments
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Putting it into practice
•Complete pages 7 to 11 and pages 19 to 21 of your AP exercise books
•Read pages 23 to 25 then complete the exercises on pages 26 to 28
•This concludes Unit One
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Putting it into practice
•Read pages 23 to 25 then complete the exercises on pages 26 to 28
•This concludes Unit One