Economics Transition Learning Instructions In order to be as ready for the course as possible, it is advised that you complete this entire pack, however only specific sections are compulsory while the remaining are considered extension tasks. All of sections 1 and 2 are compulsory, as well as the first two parts of section 3 (Factors of Production and Types of Economic System) and the first part of section 4 and Gross Domestic Product…). Contents 1. Introduction 2. The Basics What is Economics? Two Branches of Economics Resource Allocation and Choices Economic Schools of Thought 3. Microeconomics Factors of Production Types of Economic System The Objectives of Firms Market Structures Market Structure - Monopoly 4. Macroeconomics Gross Domestic Product, Economic Growth and the Economic Cycle Unemployment Measuring Development Introduction Welcome to the Economics department! In this booklet you will be given the tools to get ahead in preparation for your A level Economics course, and have the opportunity to engage in some exciting economic concepts that are hot topics in the news today. First, you will be introduced to some important key concepts that you will need to have a good grasp of in order to gain a deep understanding of the course material you will study over the two year period. We will then dive deeper into parts of the syllabus by learning about a few concepts and topics that are highly relevant in the world we live in today, divided into microeconomic and macroeconomic concepts. So, let’s get started! The Basics What is economics? Economics is a social science, which means it is the study of human behaviour. Unlike natural sciences (like Biology or Chemistry), it is not based on controlled laboratory experiments, where only one variable is changed at a time. Instead, we use methodology involving different tools such as data and observations to make conclusions in economic theory, as well as simplifying assumptions to limit the number of variables in an investigation. To get around the problem of the existence of multiple variables in an economy, economists use the assumption known as ceteris paribus, which is Latin for ‘all other things remain equal’. Like many concepts, there is more than one way to define economics. Task 1: Find three different definitions of economics by three different people/sources. ​ Definition 1: Definition 2: Definition 3: Two Branches of Economics There are two branches of Economics which make up the two halves of the course. You will sit three exams at the end of the two years, one on Microeconomics, one on Macroeconomics and one last paper which includes content from both halves of the course. Task 2: What is the difference between macroeconomics and microeconomics? (100 words) ​ Resource Allocation and Choices The Economic Problem is that desires/wants of consumers are unlimited but resources are limited in supply (i.e. they are scarce). Because of this problem, individuals have to make choices (they can’t have everything they want!). Economics is the study of how human beings make choices on what to produce, how to produce and for whom to produce, in a world in which most of the resources are limited (i.e. scarce). All economic agents have to make choices due to scarce resources. For example, you need to choose to study a limited number of A level subjects because of your limited recourse that is time. So, wherever there is scarcity we are forced to make choices. If we have £20, we can spend it on an economic textbook, or we can enjoy a meal in a restaurant. Economists like to say “there is no such thing as a free lunch.” In other words, every choice involves a cost. Even if something appears to be free, someone eventually bears the cost. Opportunity cost is another important concept in the study of Economics and is defined as: The cost of the next best alternative forgone. In other words, it’s what is given up when we make a choice. Task 3: Opportunity Cost ​ Watch and take notes on the following video: https://www.youtube.com/watch?v=SA16Qw09bXM Notes: Task 4: Complete the following table with potential opportunity costs to the given business decisions Economic Schools of Thought Task 5: Research task: investigate the following schools and answer the following questions: ​ 1. Neo-classical Economics i) What economists are associated with this school of thought? ii) In what era did this school of thought prevail? iii) What assumptions are made in this school of thought? iv) What role does the government have to play in economics according to neoclassical economics? v) Explain two criticisms of neoclassical economics. 2. Keynesian Economics i) What economists are associated with this school of thought? ii) In what era did this school of thought prevail? iii) What role does the government have to play in economics according to Keynesian economics? v) Explain two criticisms of Keynesian economics. 3. Behavioural Economics i) What economists are associated with this school of thought? ii) In what era did this school of thought prevail? iii) What role does the government have to play in economics according to Behavioural economics? v) Explain two criticisms of Behavioural economics. Microeconomics Factors of Production What individual firms use to produce their products are called factors of production. These factors of production (also known as factor inputs) can be categorised into four: Task 6: Can you think of any examples of each category of factors of production? Type of FoP Examples Land Labour Capital Enterprise Task 7: Multiple-Choice Quiz 1. Which one of the following is an example of land? A. Farm animals B. Laptops C. Barrels of oil D. A field of wheat 2. Which of the following does not fall within the category of land as a factor of production? A. A building B. Trees C. Coal D. Water 3. What is the best explanation of factors of production? A. Raw materials used to produce products B. Labor and materials C. Money and financing D. Resources used by a company to produce good and services 4. Which of the following is a factor of production? A. The payment of interest on a bank load B. Profit declared by a company in its annual report C. The skill of the managers of a business D. The taxes paid to the government 5. Human capital can be described as: A. The tools used by workers to enhance productivity B. A persons inherited abilities C. The stock of expertise accumulated by a worker D. Education Types of Economic Systems Economists have concluded that for societies to survive with their limited resource (land, labour, capital and enterprise), they must answer three basic questions: 1. What to produce 2. How to produce 3. For whom to produce Throughout history, societies have come up with different systems to answer these three questions. We will look at three examples. Traditional Economies In traditional economies, the three questions are answered by tradition, meaning these decisions are made by repeating decisions of previous generations. If you have seen a documentary on a primitive culture, then you have also seen a traditional economy in action. In many primitive societies, in order to survive and have enough food, societies developed a division of labour based on gender. Women would perform the food gathering and men would perform the hunting. The food would then be shared with the whole community. In this type of system, security and continuity are favoured over innovation and change, hence life hums along in quite a predictable way. Command Economies In this type of economy, the three questions are answered by an authority figure that makes the decisions. The key characteristic of the command economy​ is centralized decision-making - one leader (or a group of powerful individuals) makes the key economic decisions for the entire society. As hunter-gatherer societies grew and eventually exhausted their natural food supplies, some survived by becoming sedentary farmers. With the advent of farming came a need for an organized system of planting, harvesting and storing crops. This required a greater amount of structure than existed in a traditional economy. In order to ensure the survival of the society, decisions had to be made about what crops to grow and how much of the harvest to store. Over time, decision-making became centralized, and the command economic system developed. Examples of command economies include most, if not all, ancient civilaizations, plus the communist countries of today. During World War II, the United States practiced command economy when the government took over factories and planned production for the war effort. Every aspect of American life was in some way influenced by government involvement in the economy. Even today the influence can be seen - the modern payroll withholding system was instituted during the war to provide the government with a steady stream of tax revenue (money received by the government from tax payers). Market Economies In market economies are a complete contrast to command economic systems - they are characterised by a complete lack of centralized decision-making. Individuals trying to satisfy their own self-interest answer the questions of what, how and for whom to produce. Private citizens, acting on their own free will as buyers and sellers, trade their resources or finished products in the market in order to increase their own well-being. Individuals and businesses make the decisions; price determines how goods and services are allocated (more on this in the course). Although they cannot be classified as pure market systems, Hong Kong, the US, Australia and New Zealand are representative of market economies. In each you will see a greater variety of goods and services being produced than anywhere else.