Welcome to Economics Powerpoint produced by Rachel Farrell

Welcome to Economics Powerpoint produced by Rachel Farrell (PDST) & Aoife Healion (SHS, Tullamore)

Science • Is knowledge gained by observation and experiment that is repeated and tested

Social Science • Is the study of human behaviour

Aims • Are the goods and services that people require from an economy. • They are divided into needs and wants.

Needs • Are essentials required for survival. • Basic needs. • Food, shelter, clothing.

Wants • Are anything in excess of our needs. • Things we can live without. • TV, holidays, i-pod………………

Scarce Resources • • • AKA The factors of production. Land Labour Capital Enterprise

What is economics? • Economics is a social science which studies human behaviour in relation to people’s aims and the scarce resources available to them to achieve these aims, knowing that the resources have alternative uses.

The Factors of Production • Are those scarce resources which we use to produce wealth.

4 Factors of Production • Land • Labour • Capital • Enterprise

Land • All things supplied by nature which helps to create wealth. • It is fixed in supply. • Eg. fields, water, natural gas, oil, coal, minerals, trees……. . • The payment/reward for land is rent.

Labour • Any human effort which helps to create wealth. • Eg. employees, builders, carpenters, factory workers…. . • The reward for labour is wages.

Capital • All man-made things that are used to create wealth. • Eg. buildings, machinery, computers, tractors………. . • The reward for capital investment is interest.

Enterprise • The human activity that brings together the 4 factors of production to take the initiative and risk to set up a new business. • Eg. Bill Gates, Richard Branson… • The reward for enterprise is profit. • The risk of enterprise is loss.

Example: Bread Land Wheat Labour Farmer, baker Capital Tractor, oven, bakery Enterprise Cuisine de France

Opportunity Cost • Factors of production are scarce. • They have alternative uses. • Therefore we must make choices when deciding what to produce or purchase. • (2005 SQ 1)

Opportunity Cost (continued) • The opportunity cost is the sacrifice of the item you must do without when you have to make a choice between two items you want to produce or purchase. • (2005 SQ 1)

Opportunity Cost • • • (continued) Example I have € 2. 00. I can buy ice-cream or pringles. I choose ice-cream. Financial cost = € 2. 00 Opportunity cost = pringles.

2007 SQ 7 • An Irish banking group own thirty branch offices. There is no opportunity cost to the banking group using these offices as they are fully owned. • True/False

Answer • False • The branch offices could be sold and the money invested. • An income could be earned from renting the branch offices.

Externalities • Are the unintended side effects of a calculated decision to do something. • Bad: Factory = pollution, noise, traffic. • Good: Money from rates used to build sports hall…

Wealth • Is a stock of goods and services which have been accumulated. • Eg. cars, houses, computers…. . • Note: See interactive resources

Income • Is a flow of goods and services. • It is possible to have a high standard of living and to spend all your earnings on disposable goods and have no wealth left to show for that spending.

Our Welfare Comprises of having a combination of good; • Income • Wealth • Happiness • Living conditions •

The Aims of Economics 1. To achieve efficient use of resources § To use the factors of production in such a way as to satisfy as many of the needs and wants of society as possible. § Eg. recycling, efficient cars……

2. To achieve an equitable distribution of wealth § Rewarding people in relation to the contribution they make to the economy. § Providing income for people unable to work.

3. To create stability in an economy § To attempt to avoid the cycle of booms (huge economic growth) and slumps (recessions) in the performance of an economy.

Microeconomics • Deals with individual units and the interaction between them. • Eg. consumer, household, firm. • It deals with supply and demand. • It shows how many goods will be produced and consumed at a given market price.

Macroeconomics • Is the study of the entire economy in broad terms. • Eg. the total income in the economy, the total level of employment, the total amount of production.

Open Economy • Trades with other countries. • Eg. Ireland.

Closed Economy • Does not trade with other countries.

A Free Good • Is a good that is plentiful in supply. • Eg. Air, water. • But their status may change due to pollution, drought………

An Economic Good 1. Is a good that demands a price. 2. It must give some satisfaction when consumed. 3. It must be transferable from one person to another. Students: Write a brief Explanation of each point & eg.

A Capital Good • Is a good not wanted for itself. • But for the contribution it makes produce goods and services.

An Economic Model • Is a simplified representation of the real world.

Ceteris Paribus § Is the assumption that no other factor which influences the topic we are talking about changes at that time. § i. e. “All things being equal. ” Eg. If price increases demand falls, assuming that incomes did not rise.

The laws of economics are dynamic • Because; • They are not statement of fact. • They are a statement that under certain economic conditions, certain people will act in a certain way.

• Economic laws may become obsolete due to; • Changing human behaviour. • Changing economic conditions.

Positive Economics • Is a neutral science. • It states what is. • It does not give value judgements. Eg. The government needs to increase spending. (leaves it to gov to decide on what)

Normative Economics • Is based on value judgements. • Eg. The government should spend more money on education as this is best for the nation’s future.

Deductive Reasoning(abstract) • Going from general to particular. • Drawing conclusions from generally held principles. • Eg. If prices of goods fall demand increases, therefore if the price of Daz falls more of it will be demanded.

Inductive Reasoning (empirical) • Going from particular to general. • Drawing conclusions from observing known facts of many particular situations.

Eg. • A study found that demand fell in 1, 000 individual shops when prices were increased. • Therefore we can conclude that when prices rise, demand falls. (ceteris paribus)