Economics is fundamental to everything we do.
Each day we take decisions on economic grounds: • how much to spend on different types of goods and services • whether to travel by bus or train • whether to eat in the Union or in a local pub/cafe • whether to buy textbooks or clothes Others also take decisions which have an impact on us: • companies decide to raise/lower their prices • government may change income tax, vat, student maintenance allowances, tuition fees TV, radio and press commentators are constantly examining the implications of decisions and choices.
Scarcity - The Central Issue
Taking decisions/making choices - made necessary by scarcity: the volume of goods and services which can be produced is less …show more content…
• households use incomes (factor rewards: rent, wages, profit, interest) as basis for buying goods and services (consumer demand)
• firms use the factors they hire to supply goods and services (production)
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Microeconomics examines: what goods and services are supplied/demanded how factors of production are used who receives rent, wages, profits, interest
Macroeconomics examines: the total size of the flows what determines the size of the flows
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CHOICE AND OPPORTUNITY COST
• In choosing to purchase certain items, a consumer has less to spend on other goods and services. - £100 spent on clothes could otherwise be spent on £100 of CDs, books, food • When choosing to produce more of particular items, a firm has to forego production of other goods and services. - £100 spent on producing more shirts could have been spent on producing jeans instead.
The sacrifice of alternatives is the opportunity cost. Opportunity costs of attending lectures, e.g.: not working in library not having an extra hour's sleep (9am lecture)
In reaching decisions on what sacrifices to make you compare benefits and costs. Is the extra benefit of working for an hour in the library greater/less than the costs of not doing other things? extra benefits extra