Economic Issues www lrjj cn Economics What is

Economic Issues www. lrjj. cn

Economics • What is Economics? • Macroeconomics vs. Microeconomics • Demand Supply www. lrjj. cn

What is Economics? www. lrjj. cn

What is Economics? • “Oikonomos” – One who manages a household • The production of goods and services • The consumption of goods and services • The study of how the people allocate their limited resources to satisfy their unlimited wants (It is the study of how people make choices – involves sacrifice) • Central Economic Problem: Scarcity www. lrjj. cn

Resources & Wants • Resources are things that have value and are used to produce things that satisfy people’s wants (Supply) • Wants are all of the things that people would consume if they had unlimited income (Demand) www. lrjj. cn

Resources • Factor of production – Human resources: Labor – Natural resources: Land, raw materials – Manufactured resources: Capital www. lrjj. cn

Branches of Economics Microeconomics = Individual Macroeconomics = Whole www. lrjj. cn

Macroeconomics • The branch of economics that studies economics aggregates – demand supply • The part of economic analysis that studies the behavior of the economy of a whole – deals with economy wide phenomena e. g. GDP, CPI www. lrjj. cn

GDP & CPI • GDP – A measure of the total income and expenditures of an economy – The total market value of all final goods and services produced within a country in a given period time • CPI – A measure of the overall cost of the goods and services bought by a typical consumer www. lrjj. cn

GDP & economic well-being • GDP is a good measure of the economic wellbeing of a society • GDP person tells us the income and expenditure of the average person in the economy • But it misses… – Leisure reduction increases GDP but may reduce well -being – The value of clean environment – Non-market activities? www. lrjj. cn

Macroeconomic Issues • Aggregate demand – The total level of spending in the economy • Aggregate supply – the total amount of output in the economy • AD > AS – Inflation – Balance of trade deficit (Export & Import) • AD < AS – Recession – Unemployment www. lrjj. cn

Macroeconomic policy • AD = AS – Demand-side policy – Supply-side policy www. lrjj. cn

Microeconomics • The part of economic analysis that studies decision making undertaken by individuals and by firms • Focus on the small part of economics www. lrjj. cn

Microeconomics Issues • Choices: – What – How – For whom • Opportunity cost • Rational decision making – Weighting up the benefit (Value for money) • Marginal Costs & Marginal Revenues • Social implications/consequences of choices www. lrjj. cn