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Revision Notes For Business Economics 23115 Complete Exam Notes

Economics is the study of how individuals, businesses, governments, and societies make choices with limited resources. Microeconomics examines individual and business choices and how they interact in markets, while macroeconomics studies overall national and global economic performance. A key concept is opportunity cost, which is the highest valued alternative given up when making a choice. Production possibilities frontiers and curves illustrate the tradeoffs between goods that are possible and efficient given limited resources. Marginal analysis compares marginal costs and benefits to determine the most efficient level of production where benefits equal costs. Economic growth expands production possibilities over time through technological change and capital accumulation, though this comes at the opportunity cost of reduced current consumption.

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257 views4 pages

Revision Notes For Business Economics 23115 Complete Exam Notes

Economics is the study of how individuals, businesses, governments, and societies make choices with limited resources. Microeconomics examines individual and business choices and how they interact in markets, while macroeconomics studies overall national and global economic performance. A key concept is opportunity cost, which is the highest valued alternative given up when making a choice. Production possibilities frontiers and curves illustrate the tradeoffs between goods that are possible and efficient given limited resources. Marginal analysis compares marginal costs and benefits to determine the most efficient level of production where benefits equal costs. Economic growth expands production possibilities over time through technological change and capital accumulation, though this comes at the opportunity cost of reduced current consumption.

Uploaded by

Anuj Chauhan
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Economics Notes
Lectures 1- 6

Lecture 1-
WHAT IS ECONOMICS?
Economics: the study of choices that individuals, businesses, governments and societies must make
in order to deal with the problem of scarcity, and the incentives that influence and reconcile those
choices.
Scarcity: our inability to satisfy all our wants.
Incentive: a reward that encourages an action or a penalty that discourages an action.
Microeconomics: the study of choices that individuals and businesses make, the way those choices
interact in markets, and the influence of government.
Macroeconomics: the study of the performance of the national and global economies.
Two main economic questions:
1. What, how (factors of production) and for whom, to produce?
2. How does the pursuit of self-interest promote social interest?

Factors of production:
– Land earns rent
– Labour earns wages
– Capital earns interest
– Entrepreneurship earns profit

Opportunity Cost
– The highest-valued alternative that we must give up in order to get what we want
– A choice is a trade-off, which emphasises cost as an opportunity forgone

Choosing at the Margin


– Choices are often made at the margin  evaluate the consequences of making incremental
changes in the use of their resources
– Marginal benefit: the benefit from consuming one more unit of a good or service
– Marginal cost: the opportunity cost of producing one more unit of a good or service
– MB > MC = incentive to do more of that activity
– MC > MB = disincentive to do more of that activity
– Incentives = key to reconciling self-interest and social interest
– Social interest is served by emphasising the role of institutions in creating incentives to behave
in the social interest

The Economic Problem


Production Possibilities and Opportunity Cost
Production Possibilities Frontier (PPF): the boundary between those combinations of g + s that
can be produces and those that cannot
– Points outside the PPF are unattainable

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– Production efficiency is achieved if we cannot produce more of one good without producing
less of another
Production Possibilities Curve
- Every choice along the PPF involves a TRADEOFF
- On this PPF, we must give up some cola to get
more pizzas or give up some pizzas to get more
cola. The opportunity cost of a pizza is the cola
forgone.
-In moving from E to F, the quantity of pizzas
increases by 1 million. The quantity of cola
decreases by 5 million cans.
-The opportunity cost of the fifth 1 million pizzas
is 5 million cans of cola. One of these pizzas costs
5 cans of cola.

- N.B: the opportunity cost of one item is the inverse of the opportunity cost of the other
- PPF is concave  because not all resources are equally productive  as the quantity of a good
increases, so does its opportunity cost
- Analysis of cost and benefit  allows us to determine the alternative efficient quantities to
produce
- All points along PPF are efficient

- The marginal cost of a good or service is the opportunity cost of


producing one more unit of it.
- The opportunity cost of producing one more pizza is the marginal
cost (MC) of a pizza.

- The marginal benefit (MB) of a good or service is the benefit received from consuming one more
unit of it; we measure marginal benefit by the amount that a person is willing to pay for an
additional unit of a good or service.
- It is a general principle that the more we have of any good, the smaller is its marginal benefit and
the less we are willing to pay for an additional unit of it.
- We call this general principle the principle of decreasing marginal benefit.

- The marginal benefit curve shows the relationship


between the marginal benefit of a good and the quantity
of that good consumed

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- The MB curve slopes downward to reflect the principle of decreasing marginal benefit
– Preferences: description of a person’s likes and dislikes
– Described using the concepts of marginal benefit and the MB curve
– Measure MB  by the amount that a person is willing to pay for an additional unit of a good
or service
– Principle of Decreasing Marginal Benefit: more we have of any good  the smaller its
marginal benefit & the less we are willing to pay for an additional unit
– Marginal Benefit Curve: shows the r/s between the MB of a good and the quantity of that
good consumed

– Production Efficiency: When we cannot produce more of any one good without giving up
some other good
– Allocative Efficiency: When we cannot produce more of any one good without giving up
some other good that we value more highly

- The point of allocative efficiency is the point on the PPF


at which marginal benefit equals marginal cost.
- always the point of interception

Economic Growth- The expansion of production possibilities—an


increase in the standard of living— (expanding PP curve= eco
growth)
Two key factors influence economic growth:
 Technological change
 Capital accumulation
Technological change is the development of new goods and of
better ways of producing goods and services: to promote
technological change and growth we must use research and
development (produce new capital/ decrease consumption)
Capital accumulation is the growth of capital resources, which includes human capital.

Cost of economic growth


– Lost production  resources allocated instead to research and development  opportunity
cost of eco growth = less current consumption

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