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1

Scarcity

Scarcity refers to the limited nature of society’s resources.

2

Economics

Economics is the study of how society manages its scarce resources.

3

Opportunity cost

Opportunity cost is the best alternative that must be given up to obtain some items.

4

Opportunity cost formula

Opp.Cost=what you give up/what you gain

5

Microeconomics

Microeconomics is the study of how households and firms make decisions and how they interact in markets.
For example, microeconomics focuses on individual markets, examining how incentives and trade-offs influence buyer and seller behaviour.

6

Macroeconomics

Macroeconomics is the study of economy-wide phenomena, including inflation, unemployment and economic growth. Macroeconomics is a branch of economics dealing with the performance, structure, behaviour, and decision-making of an economy as a whole. This includes national, regional, and global economies.

7

Positive statements

Positive statements are claims that attempt to describe the world as it is.

An example of a positive statement is ‘minimum wage laws create unemployment’.

This can be tested.

8

Normative statements

Normative statements are claims that attempt to prescribe how the world should be.

An example of a normative statement is ‘the minimum wage should be raised’.

This is subjective and can’t be tested. There will be arguments for and against this proposition.

9

GDP

Gross domestic product (GDP) is a measure of the total income and expenditure of an economy.
It is the total market value of all final goods and services produced within a country in a given period of time.

GDP is the market value of all final goods and services produced within a country in a given period of time

10

The components of GDP

Y = C + I + G + NX

GDP (Y) is the sum of the following:
consumption (C)
investment (I)
government purchases (G)
net exports (NX)

11

Consumption (C):

The spending by households on goods and services, with the exception of purchases of new housing.

12

Investment (I):

The spending on capital equipment, inventories and structures, including household purchases of new housing.

13

Government purchases (G):

The spending on goods and services by local, state and federal governments.
Does not include transfer payments because they are not made in exchange for currently produced goods or services.

14

Net exports (NX):

Exports minus imports.

15

Nominal GDP

Nominal GDP values the production of goods and services at current prices.

16

Real GDP

Real GDP values the production of goods and services at constant prices.

17

Real and nominal GDP example

3 photos in favourites on phone 25/7/18

18

The GPD deflator

The GDP deflator is a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100. It tells us the rise in nominal GDP that is attributable to a rise in prices rather than a rise in the quantities produced.

19

The GDP deflator is calculated as follows:

Nominal GPD divided by real GPD multiplied by 100

20

Inflation

Inflation (CPI) refers to a situation in which the economy’s overall price level is rising.

21

inflation rate

The inflation rate is the percentage change in the price level from the previous period.

22

consumer price index (CPI)

The consumer price index (CPI) is a measure of the overall cost of the goods and services bought by a typical consumer.

The Australian Bureau of Statistics reports the CPI each month.

23

Calculating the CPI and the inflation rate: An example

6 photos in favourites on phone 6/8/18

24

CPI =

(cost of basket current year/cost of basket base year) x 100

25

Inflation rate =

(CPI2 -CPI1)/CPI1 X100%

26

Value in year 2 dollars =

value in year 1 dollars x price level 2 / price level 1

27

The 2 problems of unemployment

The problem of unemployment is usually seen as two separate problems:
The long-run problem, and
the short-run problem

The long-run problem focuses on reducing the natural rate of unemployment

The short-run problem focuses on reducing the cyclical rate of unemployment

28

Employed

A person is considered employed if he or she has spent 1 hour of the previous week working at a paid job or family business.

29

3 categories of employment

A person is considered employed if he or she has spent 1 hour of the previous week working at a paid job or family business.

30

Labour force

The labour force is the total number of workers, i.e. the sum of the employed and the unemployed.
A person who is neither employed nor unemployed is not in the labour force