IGCIC Economics Overview

The Economic Problem

• Definition: Fewer resources than unlimited wants.
• Types of Goods:
  • Economic Goods: Have opportunity costs.
  • Free Goods: Do not have opportunity costs (e.g., sunlight).

Factors of Production

• Remember with the acronym CELL:
  • Capital: Manufactured resources.
  • Enterprise: Skills and willingness to take risks.
  • Land: Natural resources.
  • Labor: Human resources.
• Rewards for Factors:
  • Land: Rent
  • Labor: Wages
  • Capital: Interest
  • Enterprise: Profits

Mobility of Factors

• Geographical Mobility: Willingness to relocate for employment.
  • Barriers: Family ties, commitments, cost of living.
• Occupational Mobility: Changing jobs affected by training period and education.

Opportunity Cost

• Definition: Cost of the next best alternative when choosing a good.
• Production Possibility Curve (PPC):
  • Points inside the curve are inefficient.
  • Points outside the curve are unattainable.
  • Outward Shift: New resources, technology, increased labor force.
  • Inward Shift: Natural disasters, low investments, resource depletion.

Branches of Economics

• Microeconomics: Study of particular markets.
• Macroeconomics: Study of the whole economy.

Key Economic Questions

1. What to produce?
2. How to produce?
3. For whom to produce?

Price Mechanism

• Decisions based on the equilibrium point of supply and demand.

Demand

• Definition: Willingness and ability to buy goods/services at a given price.
• Law of Demand: Higher prices lead to lower demand.
• Factors Affecting Demand:
  • Price, advertising, government policies, consumer tastes, income, substitutes, interest rates.
• Types of Demand:
  • Individual Demand: Demand by one individual.
  • Market Demand: Aggregate of all individual demands.

Supply

• Definition: Ability and willingness to provide goods/services at a given price.
• Law of Supply: Higher prices lead to higher quantity supplied.
• Factors Affecting Supply:
  • Costs of production, prices of other goods, global factors, technology advances, business optimism.
• Types of Supply:
  • Individual Supply: Supply by one producer.
  • Market Supply: Aggregate supply from all firms.

Market Equilibrium

• Equal supply and demand in an economy.

Price Elasticity of Demand (PED)

• Definition: Responsiveness of demand to price changes.
• Types: Inelastic and elastic demand.
• Factors Affecting PED: Number of substitutes, time period, income proportion, necessity.

Price Elasticity of Supply (PES)

• Definition: Responsiveness of quantity supplied to price changes.
• Formula: % change in quantity supplied / % change in price.
• Factors Affecting PES: Time, resource availability, spare capacity, substitution.

Economic Systems

• Market Economic System: Run by private firms and individuals.
• Market Failure: Price mechanism fails to allocate resources.
• Mixed Economic System: Government involvement in the economy.

Functions and Characteristics of Money

• Functions: Medium of exchange, unit of account, store of value, standard for deferred payment.
• Characteristics: Acceptability, durability, portability, divisibility, scarcity.

Types of Banks

• Commercial Banks: Provide financial services to the public.
• Central Banks: Manage the currency and monetary policy.

Households and Factors Influencing Occupation

• Influences: Challenge level, danger level, training length, education.
• Demand for Labor: Affected by productivity.
• Supply of Labor: Affected by training quality.

Wage Differentials

• Occupational Wage Differentials: Job satisfaction, fringe benefits, labor immobility.
• Wage Differentials in Same Job: Local pay agreements, discrimination, non-monetary agreements.

Specialization

• Definition: Production broken down into tasks.

Trade Unions

• Protect the interests of members regarding wages, benefits, and conditions.

Classifications of Firms

• Sectors:
  • Private Sector
  • Public Sector (owned by government)
• Mergers: Formation of new companies from agreement between firms.
  • Types: Horizontal, vertical (forward and backward), lateral.
• Objectives of Firms: Survival, growth, profit maximization.

Government Microeconomic Aims

• Economic growth, low unemployment, low inflation, stable prices, balance of payments stability, redistribution of income.

Government Policies to Boost Economy

1. Fiscal Policy:
   • Expansionary: Reduces taxes, increases spending.
   • Contractionary: Increases taxes, reduces spending.
   • Types of taxes: Progressive, regressive, proportional, direct, indirect.
2. Monetary Policy:
   • Use of interest rates to control money supply.
   • Contractionary: Raises interest rates to reduce inflation.
   • Expansionary: Lowers interest rates to increase employment.
3. Supply-Side Policies:
   • Aim to increase economic growth by raising productive potential.
   • Tools: Tax incentives, subsidies, education, competition policy, free trade, deregulation.

Economic Growth

• Annual increase in national output (GDP).
• Recession: Opposite of economic growth.

Types of Employment

• Cyclical, structural, frictional, seasonal unemployment.

Inflation and Deflation

• Inflation: Sustained increase in price levels.
• Deflation: Decrease in price levels (inflation falls below 0%).
• Types of inflation: Cost-push, demand-pull.

Economic Development

• Living Standards: Measure of economic well-being.
• Poverty: Absolute (below income threshold) vs. Relative (below average income).
• Causes of Poverty: Unemployment, low wages, illness, poor healthcare, low literacy, high population growth, poor infrastructure.

Population Factors

• Birth rate, death rate, immigration, emigration.

International Specialization

• Countries specialize based on absolute or comparative advantages.
• Advantages: Efficiency, labor productivity, increased productive capacity.
• Disadvantages: Over-specialization, lack of variety, high labor turnover.

Globalization

• Process of businesses developing international influence.
• Multinationals: Operate in multiple countries.
• Benefits of Free Trade: Cheaper/better products, increased competition, lower prices.
• Trade Protection: Tariffs, subsidies, quotas, embargoes.

Foreign Exchange Rates

• Definition: Price of currency in terms of another.
• Trade Deficit: More imports than exports.
• Trade Surplus: More exports than imports.