Section 1: The Basic Economic Problem
1.1 Scarcity and Choice
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Scarcity: The fundamental economic problem arising because
resources are limited, but human wants are infinite.
Choice: Due to scarcity, individuals, firms, and governments
must make choices about how to allocate limited resources to
satisfy various needs and wants.
1.2 Factors of Production
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Land: Natural resources used in the production of goods and
services.
Labour: Human effort, both physical and mental, used in the
production process.
Capital: Man-made goods used to produce other goods and
services.
Enterprise: The ability to combine the other factors of
production to produce goods and services.
1.3 Opportunity Cost
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Definition: The next best alternative forgone when a decision
is made.
Example: If a student spends time studying economics instead
of working a part-time job, the opportunity cost is the
income they could have earned.
1.4 Production Possibility Curve (PPC)
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Definition: A graphical representation showing the maximum
combination of goods and services that can be produced in an
economy, given its resources and technology.
Diagram:
Capital Goods
|
|
*
|
*
| *
| *
|*__________ Consumer Goods
In this diagram, the curve represents efficient production points.
Points inside the curve indicate underutilization of resources, while
points outside are unattainable with current resources.
📘 Section 2: The Allocation of Resources
2.1 Microeconomics and Macroeconomics
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Microeconomics: Focuses on individual markets and the
behavior of consumers and firms.
Macroeconomics: Examines the economy as a whole,
including issues like inflation, unemployment, and national
income.
2.2 The Market System
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Market Economy: An economic system where decisions
about production and consumption are driven by market
forces without government intervention.
Mixed Economy: Combines elements of market and planned
economies, with both private and public sector involvement.
2.3 Demand
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Definition: The quantity of a good or service that consumers
are willing and able to purchase at different prices.
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Law of Demand: As the price of a good rises, the quantity
demanded falls, ceteris paribus.
Diagram:
Price
|
| *
| *
| *
|*
|*__________ Quantity
This downward-sloping demand curve illustrates the inverse
relationship between price and quantity demanded.
2.4 Supply
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Definition: The quantity of a good or service that producers
are willing and able to sell at different prices.
Law of Supply: As the price of a good rises, the quantity
supplied increases, ceteris paribus.
Diagram:
Price
|
|*
| *
| *
| *
|__________ Quantity
This upward-sloping supply curve indicates a direct relationship
between price and quantity supplied.
2.5 Market Equilibrium
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Equilibrium Price: The price at which the quantity demanded
equals the quantity supplied.
Equilibrium Quantity: The quantity bought and sold at the
equilibrium price.
Diagram:
Price
|
| D
| /
| /
|/S
|/__________ Quantity