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EFSAS outlines C (1)

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Chapter 1:
What economics
is all about
Learning outcomes
Once you have studied this chapter you should be able to explain
what economics is all about
• define economics
•
define the important concept of opportunity cost
•
describe a production possibilities curve or frontier
•
distinguish between microeconomics and macroeconomics
•
distinguish between positive and normative economics
•
explain why economics is a social science
•
identify some common mistakes in reasoning about economics
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What is economics?
See Box 1-1 Some definitions of economics (Textbook page 3)
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Scarcity, choice and opportunity cost
• Wants
• Needs
• Demand
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Illustrating scarcity, choice and opportunity
cost: the production possibilities curve
Table 1-1 Production possibilities for the Wild Coast community
(Textbook page 6)
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Illustrating scarcity, choice and opportunity cost: the production possibilities curve
Figure 1-1 A production possibilities curve for the Wild Coast
community (Textbook page 6)
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Further applications of the production
possibilities curve
See Box 1-2 Goods and services (Textbook page 7)
Figure 1-2 Improved
technique for producing
capital goods
(Textbook page 9)
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Further applications of the production possibilities curve
Figure 1-3 Improved technique for producing consumer goods
(Textbook page 10)
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Further applications of the production possibilities curve
Figure 1-4 Increase in the quantity or productivity of the available
resources (Textbook page 10)
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Further applications of the production possibilities curve
Table 1-2 The production possibilities curve (PPC): a summary
(Textbook page 10)
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Economics is a social science
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Microeconomics and macroeconomics
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Positive and normative economics
See Box 1-3 Microeconomics versus macroeconomics: some
examples (Textbook page 12)
See Box 1-4 Why economists disagree Textbook page 13)
(
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A few points to note
• The economic way of thinking
• The blinkered approach (or biased thinking)
• Fallacy of composition
• Post hoc ergo propter hoc
– Correlation and causation
• Levels and rates of change
Box 1-5 Percentages and percentage changes
(Textbook page 16)
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Appendix 1-1: Basic tools of economic
analysis
A.1: Theory and reality
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Appendix 1-1: Basic tools of economic analysis
A.2: Different ways of expressing a theory
Table A-1 Total household income and total household spending on
consumer goods and services (Textbook page 19)
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Appendix 1-1: Basic tools of economic analysis
A.3: Equilibrium and ceteris paribus
• Equilibrium
• Ceteris paribus
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Appendix 1-1: Basic tools of economic analysis
A.4: Reading and working with graphs
• The axes
Figure A-1 The basic elements of a graph (Textbook page 21)
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Appendix 1-1: Basic tools of economic analysis
• Drawing a graph from a table
Table A-2 Annual rainfall and maize production (Textbook page 22)
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Appendix 1-1: Basic tools of economic analysis
Figure A-2 Plotting points on a graph (Textbook page 21)
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Appendix 1-1: Basic tools of economic analysis
Figure A-3 A graphical presentation of the relationship between
maize production and rainfall (Textbook page 22)
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Appendix 1-1: Basic tools of economic analysis
• Relationships between economic variables
Figure A-4 Some possible relationships in economics
(Textbook page 22)
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Appendix 1-1: Basic tools of economic analysis
• Plotting a graph from an equation
– The intercept
– The slope
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Important concepts
•
Wants and needs
•
Durable goods
•
•
Means or resources
Scarcity (unlimited wants and
•
Services
•
Final goods
limited resources)
•
Intermediate goods
•
Choice
•
Private goods
•
Opportunity cost (or trade-off)
•
Public goods
•
Production possibilities curve
•
Economic goods
•
Potential output
•
Free goods
•
Economic growth
•
Homogeneous goods
•
Consumer goods
•
Heterogeneous goods
•
Capital goods
•
Non-durable goods
•
•
Resource allocation
Social science (versus natural
•
Semi-durable goods
science)
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Important concepts
•
Explanation
•
Correlation and causation
•
Prediction
•
Levels versus rates of change
•
Policy
•
Theory
•
Ceteris paribus
•
Simplification
•
Microeconomics
•
Schedule
•
Macroeconomics
•
Graph
•
Positive economics
•
Equilibrium
•
Normative economics
•
Direct (positive) relationship
•
Biased thinking
•
Inverse (negative) relationship
•
Fallacy of composition
•
Intercept
•
Post hoc ergo propter hoc
•
Slope
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