Economics

Economics 111 – Week 1

Resources are limited but, wants are unlimited (Scarcity)

Therefore, we to make choices, choices are made using marginal analysis (looking at the marginal benefit of an activity vs the marginal cost of an activity.

E.g. Marginal benefit (MB), education. Marginal cost (MC), fee to attend university for education.

Rational, if MB > MC

Opportunity cost is the value of the next best alternative, deferring from person to person. What a person have given up for MB, perhaps a high school graduate who had given up a full time job (earning say, 30 grand) for education, paying even more for university fees. Time could also be an opportunity cost.

We also look at whether the decision made are efficient… we look at the role of Policy in improving efficiency.

Two types of economics, there’s Macroeconomics and Microeconomics. Macroeconomics, look at Australia as a whole and its interaction with the global economy. Microeconomics, look at individual parts of the economy. (How do households make the decisions, industry’s make their decisions, specific parts of a whole Australia.)

Topic 1

Resources/Input/Factors of productions (can be scarce and limited).

1. Land/Natural resources

• Income for land is called rent

1. Labour (physical or mental effort)

• Income for labour is called wages

1. Capital (Produced to be used in the future, to produce something else. E.g. Factories, machines)

• Income for capital is called interest

1. Entrepreneurship. (The idea and organisation or managing the resources. Without an idea, production would not occur.)

• Income for entrepreneurship is called profit.

We can assume that all resources are owned by ‘households’. A household is a entity that holds resources, and these resources are sold to “firms”. Firms pay households income.

Economic growth (PPF shifting up), can be due to more and new resources, more labour and capital accumulation. Thus, capital accumulation can produce more resources. Economic decrease (PPF shifting down), can be due to war or natural disasters.

Why is the PPF (Production probabilities frontier) concave?

PPF concave because they are different, they have different capabilities and are not equally adaptable to the production of all goods.