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Unit 1: Competitive markets, How they work and why they fail.

Section A – What is the nature of economics?

Scarcity and opportunity cost
References   Anderton (p 2-13)
          Sloman (p 4-5, 8-9)
  a) Scarcity – There are only a limited amount of resources on the planet, this causes finite resources. E.g. A family/government is on a fixed budget.

Resources, which are scarce, are called economic goods.
Example of such resources:
  * Gold
  * Fish
  * Polluted water and air are considered economic goods
Polluted water and air are considered economic goods
  * Trees
  * Land
Resources, which are not scarce, are called free goods.
Example of such resources:
  * Water
  * Air

  b) Infinite wants – Humans have a minimum level of needs, which are necessary for survival. E.g. Food, Shelter, Clothes.

However, people would rather enjoy a higher standard of living because we all have unlimited number of wants. E.g. Ferrari.

  c) The basic economic problem - resources are scarce and our wants are infinite leading to the basic economic problem. Because of the B.E.P decisions have to be made on how to allocate the resources. So economic agents (e.g. individuals/firms/government) have to decide on how to allocate them.

  d) Opportunity cost – Is making choices. E.g. $40 night out or a shirt?
      a. If you spent $40 on a night out the opportunity cost will be the t-shirt.
What is an economy and what are its fundamental problems .
ReferencesAnderton (p 10)
An economy is a system, which attempts to solve the basic economic problem.
Types of economy:
  * Household
  * Even though these types of economies are different, all face the same problem (BEP)
Even though these types of economies are different, all face the same problem (BEP)
  * National
  * International
  * Free market
  * Command

Fundamental problems

  1. Q: What is to be produced Quantity   Goods/...

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