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Basic economic problem : Scarcity
Scarcity : Unlimited wants VS limited resources

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- A product/good that need resources to produce it.
- Limited in supply
- Opportunity cost
- Consumers need to pay for it
- It has opportunity cost

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- A product/good that doesn't need resources to produce it.
- Unlimited in supply
- Consumer don't have to pay for it.
- No opportunity cost

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- Needs are necesssary for consumer's living such as food , house and clothes.

- Wants are not necessary for consumer's living such as car, jacket and etc

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- Consumers goods are durable and non-durable which are needed by consumers to fullfill their wants

- Capital goods are manmade such as machines, tools and equipments needed by the firms to increase their productive capacity.

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Merit goods
- Socially desirable
- Limited in supply
- Positve externalities
- Ex: Apple, books

Dimerit goods
- Non-desirable goods
- Negative externalities
- Unlimited in supply
- Ex: Contraceptive, Drugs

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Private goods
- Goods are supplied by the private sectors.
- Impose charges for the goods
- Non-payers are included

Public goods
- Goods are supplied by the public sector
- Impose cheaper charges or free
- Non-payers and payers are non-excludable.

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C.E.L.L

C - Capital
E - Enterprise
L - Land
L - Labour

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- Lands are natural resourses which are used for production
- Ex: Sea, Forest, River
- The reward for land is rent

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- Capital is a manmade items such as machinaries, tools and equipments which are used to produce goods and services
- Reward for capital is Interest.

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- Labours are known as human resources which include mental and physical effort to produce goods and services.
- 2 types of labours : Skilled labours & Unskilled labours.
- Reward for labour is Wages.

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- Enterprise combines all the the resources such as, capital, land, and labour.
- Enterpise organizes production, decision making, and bare risk.
-  Reward for enterprise is Profit.

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Resourses than can be moved from one production activity to another without incuring any loss of output or cost .

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Occupational Mobility & Geographically Mobility

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Occupational Mobility & Geographically Mobility

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Occupationally Mobillity : Ability to move factors between different productive activities.

Geographically Mobility : Ability to move factors of production to a different location.

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Occupational immobile: When workers are not able to change job due to less qualification or skill.

Geographically immobile: When workers are not able work in different location due to family, commitment or moving home is expensive.

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Opportunity cost is second best alternative that has been forgive/sacrificed.

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PPC illustrates two different product produced by a country using limited resources and technologies.

PPC : Production Possibility Curve

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Point G

1. Attainnable

2. Wastage happening

3. Unemployement

4. Under produced

Point A,B,C,D,E,F,G

1. No wastages happening

2. Full employement

3. Attainnable

4. Resources are fully utillised

Point H

1. Unattainnable

2. Limted resources : C.E.L.L

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When a country operates inside PPC, it shows that, the production is at attainnable point. There are wastages happening. Resources are not fully utillised as well.

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When a country operates outside PPC it shows that, the production is at unattainnable point. Limited resources are not used such as C.E.L.L . (SCARCITY)

-Capital , Enterprise, Land & Labour

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2 types of Shifts :

- Inward Shift =Occurs when there is a decrease in capacity.
- Outward Shift = Occurs when there is increase in capacity.

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1. Limited supply of labour/land due to migration/population

2. Non-renewable resources are depleted.

3. Economy ageing & decaying infrastructure.

4. Capital equipment wears out

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1. New techonologies found

2. Natural resources are discovered

3. More supply of labours

4. Investments on modern businesses.

5. Better education and training.

6. More capital stocks

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Is a study of an economic decision and action of an individual conumers, producers and households and how these economic decision makers interact.

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Macro means "BIG".

It is used in national level.

This is often used in national economics.

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1. What to produce?

2. How to produce?

3. Whom to produce?

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Private sector/Firms have to decide on what are combinations of goods or services to produce to meet customers wants and needs.

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Firms needs to decide cobination of factors of production to produce goods and services.

Firms should decide on how much land, labour and capital needed to produce goods such as car, computers and etc.

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Finally, firms need to decide who will benefit from the output and how much they will get. This will cause a problem in distribution.

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Actions of an i ndividual consumers, firms or household in private sector determine the allocation of resources.

- NO government interventions
- Therefore, there's NO tax or public spending.

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1. A variety of goods and services.

2. Private businesses can earn more profits.

3. There's no taxation.

4. Firms will respond quickly to the change in customers   spendings.

5. Business will produce or improve their product according to the customer's taste.

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Business will only produce goods and services that earn high profit to the firm.

Harmful goods may be produced/supplied

Resources will be only produced if the business is profitable to do so. (Employees & Machinaries)

Business will only supply goods to those can afford to pay for the goods and services

Producers might ignore the damages/effects occurs to other and the environment due to their decisions. (Pollutions, Sickness & etc)

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Price mechanism determines what goods are produced, how they are produced and for whom they are produced in a market economy.

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Demand is the quantity of products that consumers are
- Willing to buy
- Able to buy
- At a price
- Over a period of time

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When price is HIGH, demand will FALL.

When price is LOW, demand will INCREASE.

The relationship between price and demand is negatively related.

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When the price changes, the quantity demanded will also change.

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Demand of one consumer.

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Total demand of all consumers in a market.

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Shift and Movement along the demand curve

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Movement on the demand diagram.

Shift in demand diagram.

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An increase in consumer's disposable income after tax

A fall in the price of a complement.

A rise in the price of substitude.

Increase in advertising

Rise in the population

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A fall in consumer's disposable income after tax

A reduction in advertising

A fall in the population

An increase in the price of complement

A fall in the price of subtitude.

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Supply is the quantity of a product that suppliers are

Willing to sell

Able to sell

At various price

Over a period of time

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When price increases, quantity supplied will also increase

When price decreases, quantity supplied will decrease.

The relationship between price and quantity supply is positively related.

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Individual supply : Supply of one firm/Producer.

Market supply : Total supply of the market.

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Movement along the supply curve:

Extension on supply

A contraction in supply

Shift in supply curve :

Increase in supply curve

A fall in supply

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As the price changes, the quantity supplied will also change.

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At the same price different quantity is supplied.

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When COP increase Supply decrease

When COP decrease Supply increase

COP production may change due to:
- Wages
- Raw material
- Output per worker
- Transport cost
- Energy cost (Electricity)

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When governent gives subsidies:

COP decrease QS increase

When government takes subsidies:

COP increase QS decrease

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When demand and supply diagram of a product meets at one particular price and quantity.

Demand = Supply (Equilibrium)

Demand ≠ Supply (Disequilibrium)

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Disequilibrium happens when demand and supply doesn't meet at a point.

Excess demand & Excess supply.

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Excess demand @ shortage:

When price of the product is cheaper, therefore quantity demanded by consumers will be more than the firm able to supply. At this point, firms have to increase the price of the product.

Excess supply @ surplus:

When price of the product is expensive, suppliers will supply more. But the quantity demanded by consumers will be lesser. At this point, firms have to decrease the price of the product.

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In free market system, all decisions are taken by private sector. There's no intervention of government or public sector. Therefore, there's no taxation or public spending

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What to produce?

Should we use resources to produce many consumer goods and services

How to produce?

What tools and machinery will be needed to manufacture the goods

Who to produce for?

Should they supply the goods and services to people whom are willing to pay for their products.

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A wide variety of goods and services are produced to satisfy consumer's wants

Firms respond quickly to the change in consumer's spending

The profit motive is to encourage firms to develop new products and use an efficient way of production

No taxes

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Firms will only produce goods and services if they are profitable.

Firms will only supply goods and services that consumers are willing to pay for them.

Resources will only be employed when the business is profitable to do so.

Harmful goods will be produced if the business is profitable to do so.

Some owners will not care about the harmful effect on the environment due to their activities.

Some firms might increase high price due to lack of competition.

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Misallocation of resources that causes negative externalities to the environment

Social Cost

Private Cost

Social Benefit

Private Benefit

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Consuming and producing causes a positive externalities to the third party.

Example of positive externalities: When more hospitals are build by the government?

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Producing and consuming causes a negative externalities to the third party.

Damage includes : Pollution, destruction and other disruptions.

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The total cost of the society

Includes both private cost and any external cost.

Social Cost : Private cost + External cost

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Benefit to the society when producing and consuming goods/services.

Social Benefit : Private Benefit + External benefit

External benefit is benefit that enjoyed by other people without paying for it

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Profits made by producers in selling goods and services

Customers satisfy after consuming the goods and services to fulfill their needs and wants.

External benefit : Private benefit + Social benefit

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Expenses to producers in using resources to produce output.

Cost to consumers, where they need to spend part of their income to buy goods and services.

External Cost : Private cost + Social cost

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Private Sector : Owned by private individual

Public Sector : Owned by national or local government

Government eg : Public Hospital, Schools, Roads

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Mixed Economic system combines government planning and ownership of resources with free market system (Private Sector).

To determine the allocation of resources in the economy such as what to produce?, How to produce? and whom to produce.

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The importance of having public sector in the system:

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The importance of having public sector in the system:

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Government employ factors of production to produce and supply worthwhile goods/services that private sectors will not produce or supply because it's not profitable for them to do so.

Provide welfare benefit to poor people so that they can afford to buy from private sector who imposes higher price to the products.

Support people who are unemployed because private sectors will only employ if their profitable to do so. But government will provide financial resources and restrain them for other employment.

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Importance of having public sector in the system

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Importance of having public sector in the system

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1. Restrict the production of harmful goods and services such as weapons and drugs

2. Introduce laws to protect the environment such as plants and animals

3. Indirect taxes are used to  raise price and reduce the consumption of some non-desirable goods such as cigarettes and alcohol.

4. Subsidies are provided to reduce cost of desirable goods such as medicines to private sector so that they can able to supply more.

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Problems created because of government intervention.

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Problems created because of government intervention.

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1. Government takes longer time to agree and have an impact on the economy, firm or the individual.

2. Price controls may encourage smuggling and black markets to exit economy

3. Regulation can increase price production price and cos t

4. Public sector organization may be inefficient and may produce poor quality goods and services.

5. Government intervention can cause conflicts

6. Some government intervention maybe based on political issues.

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3.1 - Money and Banking
3.2 - Households
3.3 - Workers
3.4 - Trade Union
3.5 - Firms
3.6 & 3.7 - Organising Production
3.8 - Market Structure

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Before money was introduced, barter system was used in all economics.

1. Definition: Exchanging one good/services with another good is called barter.

2. Challenges: People find it so difficult to exchange to satisfy their needs on time

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1. Difficulties in fixing an exchange rate:

In barter system, the value of each item should be expressed in terms of other goods.

2. Difficulties in finding someone to swap with:

Double coincidence of wants. When a person do not want that particular good, another person will not be able to swap/exchange.

3. Difficulties to save:

Non durable goods will be hard to save for longer period such as food compared to durable goods such as wood or stone.

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Stage 1 : Knives, beads, shoes were used as money object.

Stage 2 : Precious metal, gold and silver which was possible enough to become money.

Stage 3 : Coins were introduced, where metals were stamped with the face of their king/queen at particular period to show their value.

Stage 4 : First paper money was issued by a goldsmith who accepts deposit of the precious metal for keeping them safely.

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Money is a medium of exchange which can be a store of value too.

Types of money - Coins & Notes

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Money as a medium of exchange
Money as a store of value
Money as a deferred payment
Money as a measurement value

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Can be used to buy and sell things

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Money can be stored for a period of time.

Store in Banks and other.

Determine whether poor or rich

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All product will able to have a value

Ex: Milk, Egg, Food, etc

These values can be compared.

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Money can be used to pay for future payment and receipts

not to pay immediately

Ex: Electric bill, Water bill, Loans, School fees.

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1. Acceptability - Money is accepted to every humans.

2. Durability - Money can be long lasting because it's strong and durable.

3. Portability - Money can be carried around easily.

4. Divisibility - Money can be divided from large to small value

5. Scarcity- Money must be limited in supply to maintain it's value

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1) Functions

Accepting deposits

Providing loans and advances

General utility services

Agency services

2) Bank Accounts

Savings Account : Able to save money for future planning. Can able to deposit and withdraw. But can't write cheques. Offer low interest.

Fixed account : Provide investors with a higher rate of interest than regular savings account, until given maturity date.

Current account : It's a deposit account, which offers to write cheques, debit card payments and overdraft facilities.

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1. Cash

2. Direct Debit

3. Cheques

4. Debit Card

5. Credit Card

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1. Cash : Use Coins & Notes to pay people.

2. Direct Debit : Banks will pay the monthly Utility Bills behalf of you.

3. Cheques : Written promise to pay the cash to another  person/organization. Should consist the Date, My Name, person whom I'm sending & Account Number.

4. Debit Card : Can able to pay for electrical items to a business organization using card.

5. Credit Card: Same as debit card but the card holder need to pay back for their purchases in a month. (Short term interest charge)

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1. Mortage:
- Long term loan payment
- Used for property settlement (25 years in duration)
- The property need to be sold or repay the debt if we can't able to pay the debt
2. Loans:
- Repaid with high interest in a fixed period (6 to 10 months)
3. Overdraft Bank:
-Banks allow people to borrow set amount of money.
- Allows people to withdraw money even there's no funds in the account.

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Owned by government and run by a public corporation.

Function of central bank is to maintain the stability of the national currency and the money supply in its country.

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Manages national debts - Repay public sector debt

Right to issue notes and coins - Able to print new notes.

Sets the official interest rate.

Central banks lend some money to other banking systems if they run out of money.

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Why do people consume goods and services?

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Why do people consume goods and services?

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Disposable Income:

The income a person left after deducting from their taxes and charges.

If the rate of taxes or charges increase, the disposable income will reduce therefore, people have to spend it wisely and save more.

If the rate of taxes and charges is less, the people's disposable income will increase, therefore they will spend more on goods and services.

Wealth

When people is more wealthy their spending on goods and services will be more.

People with more money value might own assets, jewellery, shares and etc.

Consumer Confidence

If consumers are confident with their future income then this might encourage them to spend more now. Even they can able to take a loan to buy house and car.

If consumers think that they are unemployed, they can't spend more, they have to save up more from their income for future spending.

Rate of interest

If the rate of interest is high therefore people will save up their more of their disposable income.

If the rate of interest is low therefore people might tend get more loans from the banks because the loan repayment will be lesser.

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3 - Economic Agents

Individual

Firms

Government

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1. PED

Price Elasticity of demand.

3. Formula

% change in quantity in demand of a product / Change in price of product