Principles of Economics – ECO11
Chapter 1 – The General Principles of Economics
1. The basis of the economising problem is that society’s wants are unlimited and its economic resources are scarce or limited. This gives rise to the idea of opportunity cost which is defined as the amount of other products that must be forgone to obtain a unit of a product.
2. We study economics so that we can make well informed conclusions about public policies. Knowledge of economics is also important for making fundamental business decisions. This explains why a large companies employ economists to interpret economic data so they can make informed economic decisions.
3. Economists classify productive resources into four types: land, capital, labour, and entrepreneurial ability. The payments to these factors are, respectively, rent, interest, wages and profit.
4. The concept of scarcity gives rise to the economising problem, which involves five questions: a) How much total output is to be produced?
b) What combination of outputs is to be produced?
c) How are the outputs to be produced?
d) Who is to receive and consume these outputs?
e) How can the system accommodate changes?
5. Inductive method is a process whereby facts are collected and systematically analysed. It involves moving from the answer to the general and results in the development of answer. The deductive or hypothetical method is used by economists as a way of providing a answer to explain human behaviour. This framework is open to systematic answer through the examination of relevant answer. Deduction emphasises that facts are usually meaningless without answer.
6. The ‘other things being equal to’ or answer assumption allows economists to investigate the impact of answer variable while keeping the impact of answer variables answer. This is the economist’s counterpart to the answer experiment used in the physical answer
7. Macroeconomics is concerned...
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