good evening everyone Welcome to PUMK 51 Introduction to Economics Today we'll be covering the key concepts and principles you'll need to understand for the rest of the semester We'll start off with the obvious and most basic question What is economics within a society we have unlimited wants as people We only have unfortunately scarce resources to provide for those wants So economics is a science of analyzing how we as humans use our scarce resources to fulfill our unlimited wants For microeconomics we're specifically focused on the individuals and businesses Whereas when we look at macroeconomics we're looking at the economy as a whole It's very important to remember that economics at its heart is a social science We study human behavior We look at individuals specific decision making processes It combines social an analysis mathematics and different statistics in order to enhance policy decisions You may be asked to consider the difference between micro and macroeconomics For the first six months of this year we'll be covering microeconomics and the latter half of the year will be spent on macroeconomics Microeconomics is the study of individual markets firms and households Whereas macro is concerned with the economy and the national global level At a micro level we're concerned with supply and demand and how those interact in an open market With regards to macroeconomics we're more concerned with unemployment economic growth inflation and things that affect the economy as a whole As economists we do have to understand that we can are often confronted with many different statements and you have to be able to discern whether those statements are normative or positive Normative statements tend to be subjective opinion-based statements So that is for example that unemployment is the biggest problem we face in South Africa or the government should provide free health care for all its citizens At its crux sure there may be a very moral and justified reason for thinking that way or for stipulating that is in fact in your opinion a fact But a positive statement is an objective claim based on scientific proven facts So it would also um assist you in identifying the difference if you're looking for you're looking for specifics things that could not easily be argued away So uh for example the exact percentage of our unemployment at the moment I think it's sitting at 38% Scarcity choice and opportunity co costs are at the heart of economics And we use the curve that you see on your right the production possibilities curve to depict these three things and the interaction and relationship between these three variables So scarcity is defined as exactly the crux of our economic problem our unlimited wants as people and our limited resources to provide for them This leads us to having to make a choice How do we allocate our scarce resources to get the most satisfaction the opportunity cost is the shall we say the cost of that decision So if we are to decide to make in this example 50 biscuits and position ourselves on the curve on point A that would mean that we could use the our limited resources to produce 16 units of cheese However if we as an economy or as individuals decide that we in fact would prefer to satisfy our cheese cravings we could shift our scarce resources to supply more cheese but it would cost a it would take a sacrifice of 20 biscuits We are always aiming to produce on this production possibilities curve The reason for that is the curve represents what we as an economy can produce if we're at full employment Every time that we make a decision to shift our resources we are sacrificing one of the other product We want to produce on this production possibilities curve because that makes us efficient as an economy Let's look at the production possibilities curve in a little bit more detail The production possibility curves or the PPC shows the maximum possible output of any combination of only two goods So within our economy to use the production possibilities curve we are only choosing between two products At this point I thought it may be very useful to very quickly sketch a production possibilities curve so that we can illustrate these different points on the curve Okay So this will be product y and this will be product x Okay Any point on the curve is efficient production We're going to label this A A is any point on this curve Okay that is an optimal level of production for this economy given these two products Then we have inefficient production that refers to any point within the curve any point here Why if we choose to produce at this point B the output we're receiving is below our maximum level of efficiency on both products Both Y and X are now being underproduced because our resources are not being efficiently allocated This is also a good representation of unemployment in an economy This is our potential on the curve But we are currently operating below our efficiency levels below what is attainable and we're operating at point B Points outside the curve are unattainable We'll label those point C That would be any point to the right of the curve Because any point outside of the curve is unattainable that implies the scarcity of our resources We cannot produce outside of what is possible within with the resources that we currently have for our two products unless the country has a major technological breakthrough Now technology is the one thing that can actually shift our production possibilities curve Now an outward shift implies some sort of economic growth So here if we're looking at these two graphs we must be mindful of what this technology what the actual impact was So for example if this good Y is the production of cell phones and good X is the production of laptops what we are experiencing here is some sort of technological improvement which has made the production of cell phones more efficient and as a consequence as well has also increased the production efficiency of laptops Now often times what we will actually experience in our production possibilities curve is that very often we will experience an technological innovation in one industry but not in the other How we would display that or depict that on a PPC graph is simply to show that an increase is taking place in one product but not in the other The PPC illustrates different combination of choices So at this point we are producing our maximum level of cell phones Let's say that this is a thousand units for example At this point we're only producing four laptops Okay Any combination here So either we could produce even if we decided to only produce laptops we would still be producing four laptops and zero cell phones because as you this is our origin on our graph or we could produce a thousand cell phones and given given our new technological improvement Okay it is very important for you to show me even if you don't show me the actual numbers which very often are not provided in your assessments It's important to show me that you understand that this resulted in a technological shift an improvement in technology and therefore we can now produce more of this product despite the te the production efficiency not being impacted on the other product The other thing that can happen is that we could have an inward shift That would be a movement in the opposite direction Very often this implies some sort of loss of efficiency Perhaps um there's a drought or something that has impacted our economy or these specific industries that has impacted them both ESCOM was a great representation of this It has an it had an impact on our production possibilities of all industries So when our electricity goes down we cannot produce and that causes an inward shift of our production possibilities curve Obviously this is an ideal scenario where our technology improves in all arenas and we are able to efficiently produce both goods and using the same scarce resources that we had We also need to consider as economists that we can also make mistakes There are two types of variables that we look at and we are most concerned with the relationship that they have between each other Either we're looking at correlation where two variables move together but we're not quite sure if they're directly related For example I drank a cup of tea I drove home and I got into an accident Did the tea cause my accident probably not More likely it's simply a case of correlation The two facts simply happen to exist I drank tea and I had an accident However if there was something special in that tea for example that would very reliably have influenced the outcome of having an accident So it's very interesting to see how different people interpret correlation and causation But as economists we have to stay grounded in facts Ice cream sales and crime both going up at the same time doesn't necessarily that ice cream is causing crime In economics we tend to measure our variables using two different um degrees Essentially we look at the level and that tells us at a specific time where is this economic variable For example we have experienced a 3% economic growth rate Wonderful Then we look at the rate of change because also just as important is how quickly has that variable increased or decreased If we go from a 3% growth level to a 2% growth level that rate of change is quite reasonable However if in our next GDP cycle we drop by 4% we are now automatically in a recession Someone would be able to infer from the information provided that something has gone drastically wrong in our economy So rate of change is measuring how quickly a variable increases or decreases while the level of change is measuring an economic variable at a specific point in time As economists it's very important that we remember that we have to analyze the data and information objectively We have to consider multiple perspectives and look at all potential outcomes to find the best solution We have to recognize that there are biases and limitations even in our economic theories But we are trying to fix real world problems So we have to look through at all the information using our critical thinking skills