Recap of Economics
What is Economics:
As outlined by Paul Samuelson: The study of how a person or society meets its unlimited needs, and desires through the effective allocation of resources.
Why Economics & it’s Growth matters:
It suggests the simplest way of understanding how to make the best use of obtainable resources.
The underlying essence of Economics is attempting to know how both Individuals & nations behave in response to certain material constraints.
- Economic growth is about increase in production within the economy
- It is significant because our living standards are influenced by our access to goods & services
- With economic growth we can all be potentially well off
Type of Economics:
- Macro – Study of Economy at the massive scale – It is a study of the whole economic system & its factors that touching the whole economy including GDP inflation, monetary & fiscal policies.
- Micro – Study of Economics at the level of individual, group of consumers. It explains how the individual or firms make decisions to allocate the limited resources.
Demand and Supply:
It is a backbone of a market economy. It is a relationship between the quantity of a commodity that producers want to sell at different prices & the quantity that consumers want to buy.
In equilibrium, the quantity of a supply of food by the producers equals the quantity demanded by consumers.
Elasticity of Demand:
Here, the change in quantity demanded due to a change in price is large.
3 main reasons to influence Elasticity of Demand:
- The availability of Substitutes
- Amount of income available to spend on the goods
E.g. to calculate Elasticity:
When the cost decreases from $10 per unit to $8 per unit, the quantity sold increases from 80 units to 50 units. The elasticity co-efficient is 2.25:
(50-30) / (50+30) / ($10-$8) / ($10+$8) = 20/80 / $2/$18
= 1/4 / 1/9 = 1*9 / 1*4 = 9/4 = 2.25
This is a point where supply equals demand for a product. It’s maintained by raising or lowering the price in response to changes in the supply or demand. Economy price is where the hypothetical supply & demand curves intersect.
GDP (Gross Domestic Product):
GDP is the main tool for measuring a health of a country’s economy. It refers to the entire worth of all goods & services produced over a specific time period
It can be done by 2 ways:
1. Income approach: Adding up what everyone earned in a fiscal year.
GDP = R (Rate) + I (Interest) + SA (Dividends, Corporate Profit) + W (Wages) + P (Profit)
2. Expenditure Method: It is a way of calculating GDP which adding up what everyone spent likes Compensation, Investment & net Exports.
Y = C (Compensation) + I (Investment) + G (Govt. Spending) + XM (Export-Import)