Introduction to Economics

What is the difference?

Needs: Something that is required

Wants: Something that is “nice to have” but not required.

Needs vs. Wants

Scarcity of resources◦ There are limited quantities of land, labour, and

capital. Unlimited wants

◦ There is no lack of “stuff” that we want! Resource Use

◦ How will we use what we have to produce the best mix of goods & services

Choices◦ We will have to choose what to produce/consume.

There is always an opportunity cost for every choice.

The Economic Problem

What to produce◦ What mix of goods should we make? What do

consumers want? How to produce it?

◦ How are we going to make it? What resources will we need? Will production be efficient?

Who to produce it for?◦ Who will buy our product/service? Who can afford

to buy it?

The Basic Economic Questions:

Shows the different amounts of goods that an economy can produce.

There is no “ideal” point along the curve. (different points show different combinations)

Points inside the curve are inefficient (you could produce more)

Points outside the curve are not possible without expansion of production (due to technology advances, increased population, etc)

The Production Possibilities Frontier (PPF)

The PPF GraphPro

duca

tion o

f Piz

za(Y

)

Production of Cars (X)

Production in a Simple Economy

Production Possibilities Frontier

A

At point A you can produce X₀ Cars and Y₀ Pizzas.

X₀

Y₀

B

CAt point B production is inefficient.

At point C production is impossible.

The PPF shows the opportunity cost of goods because as you produce more cars, you must then produce less pizza. This is the opportunity cost of producing more cars. (what you must give up in order to produce more of another good).

Opportunity Cost

Changing Production Levels

A

Pro

duca

tion o

f Piz

za(Y

)

Production of Cars (X)

B

Production in a Simple Economy

Y₁

X₁

Microeconomics: the branch of economics that studies individuals’ and companies’ behaviour (decision making).

Macroeconomics: the branch of economics that studies decisions made by the economy as a whole.

Macroeconomics Vs Microeconomics

In this course, we will look at macroeconomic decisions that impact our whole economy and hence the stock market.

Some macroeconomic issues include: Unemployment Poverty Development of economies Inflation Trade

Macroeconomic Issues

The supply of goods is the amount available for purchase

The demand for goods is the amount that people are requesting (want to purchase).

Both supply and demand depend on price.

Supply and Demand

Graph of Supply vs Demand

The demand curve slopes downward because people demand more as the price drops.

The supply curve slopes upwards because as the price of something increases, suppliers are willing to produce more.

The point where supply meets demand is called the equilibrium point.

These are terms used when we are talking about the total demand for goods and the total supply for goods in a whole economy.

Aggregate Supply: The total amount of goods and services produced in a given period of time.

Aggregate Demand: The total amount of money spent on various goods and services in various sectors of the economy.

Aggregate Demand vs Aggregate Supply

Graph of Aggregate Supply & Aggregate Demand

Total production of the economy

Price level of the economy

Called: GDP

Aggregate Demand

Aggregate Supply

An economy is said to be in equilibrium when Aggregate Supply = Aggregate Demand.

This is the main goal of macroeconomic policies – to ensure that our economy attains macroeconomic equilibrium.

Macroeconomic Equilibrium

Full Employment

Economic Growth

Price Stability

Trade Balance

Macroeconomic Goals