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Samenvatting Economics - Principles of Economics (1000PEC_22)
Summary of principles of economics. Covering chapter 1, 3, 5, 6, 10-14, 16
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Ch. 1 What is Economics?Our inability to get everything we want is called scarcity. Because we can’t get everything
we want, we must make choices. An incentive is a reward that encourages or a penalty that
discourages an action. If the price of a laptop is too high, more will be offered for sale than
people want to buy. And if the price is too low, fewer will be offered for sale than people want
to buy. But there is a price at which choices to buy and sell are consistent.
Economics is the social science that studies the choices that individuals, businesses,
governments and entire societies make as they cope with scarcity and the incentives that
influence and reconcile those choices. The subject divides into two main parts:
Microeconomics the study of the choices that individuals and businesses make and
Macroeconomics the study of the performance of the national economy and the global
economy.
Goods and services get produced by using factors of production:
- Land (natural resources)
- Labour (physical and mental efforts, human capital)
- Capital (tools, machines, buildings)
- Entrepreneurship (human resource)
- Land earns rent
- Labour earns wages
- Capital earns interest
- Entrepreneurship earns profit
A choice is in your self-interest if you think that choice is the best one available for you. An
outcome is in the social interest if it leads to an outcome that is the best for society as a
whole. Resource use is efficient if it is not possible to make someone better off without
making someone else worse off.
The term globalisation means the expansion of international trade, borrowing and lending,
and investment. Globalisation is in the self-interest of consumers because they can buy
low-cost goods and services produced in other countries.
A trade-off is an exchange - giving up one thing to get something else. A rational choice is
one that compares costs and benefits and achieves the greatest benefit over cost for the
person making the choice.
The benefit of something is the gain or pleasure that it brings and is determined by
preferences - by what a person likes and dislikes and the intensity of those feelings.
The opportunity cost of something is the highest-valued alternative that must be given up
to get it.
The benefit that arises from an increase in an activity is called marginal benefit. The
opportunity cost of an increase in an activity is called marginal cost.
A positive statement is about what is, we can test whether it is right or wrong. A normative
statement is about what ought to be, it depends on values and cannot be tested.
,Ch. 3 Demand and Supply
A competitive market - a market that has many buyers and many sellers, so no single
buyer or seller can influence the price.
The money price is the price of an object that must be given up in exchange for it. A
relative price is the ratio of one price to another, it is an opportunity cost.
If you demand something, then you want it, can afford it and plan to buy it. The quantity
demanded of a good or service is the amount that consumers plan to buy during a given
time period at a particular price. The law of demand states: Other things remaining the
same, the higher the price of a good, the smaller is the quantity demanded; and the lower
the price of a good, the greater is the quantity demanded. A higher price reduces the
quantity demanded for two reasons: substitution effect and income effect. The willingness
and ability to pay is a measure of marginal benefit. When demand increases, the demand
curve shifts rightward and the quantity demanded is greater at each and every price.
Six main factors bring changes in demand:
- Prices of related goods
- Expected future prices
- Income
- Expected future income or credit
- Population
- Preferences
The quantity of energy drinks that consumers plan to buy depends in part on the prices of its
substitutes and compliments. A substitute is a good that can be used in place of another
good. A compliment is a good that is used in
conjunction with another good. A normal
good is one for which demand increases as
income increases. An inferior good is one for
which demand decreases as income
increases.
A movement along the demand curve shows a
change in the quantity demanded.
A fall in the price of a good increases the
quantity demanded of it. A rise in the price of a
good decreases the quantity demanded of it.
If a firm supplies a good or service, the firm
has the resources and technology to produce
it, can profit from producing it and plans to
produce it and sell it. The quantity supplied
of a good or service is the amount that producers plan to sell during a given time period at a
particular price. The law of supply states: Other things remaining the same, the higher the
price of a good, the greater the quantity supplied; and the lower the price of a good, the
, smaller is the quantity supplied. A higher price increases the quantity supplied because
marginal cost increases.
Six main factors bring changes in supply:
- Prices of factors of production
- Prices of related goods produced
- Expected future prices
- Number of suppliers
- Technology
- The state of nature
A movement along the supply curve shows a
change in the quantity supplied.
If the price of the good falls, the quantity
supplied decreases and there is a movement
down the supply curve. If the price of a good
rises, the quantity supplied increases and there
is a movement up the supply curve.
Equilibrium is a situation in which opposing
forces balance each other. The equilibrium
price is the price at which the quantity
demanded equals the quantity supplied. The
equilibrium quantity is the quantity bought
and sold at the equilibrium price. A market
moves towards its equilibrium because: price
regulates buying and selling plans and price
adjusts when plans don’t match.
If the price is below equilibrium there is a
shortage and if the price is above equilibrium
there is a surplus. A shortage forces the
price up and a surplus forces the price down.
When demand increases, both the price and
the quantity increase. When demand
decreases, both the price and the quantity
decrease.
When supply increases, the quantity increases and the price falls. When supply decreases,
the quantity decreases and the price rises.
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