Unit 1 Economics Revision Recap Part 1

Hello. Hello everyone, and welcome to our Unit 1 Economics recap. Check out this first slide. Like this is totally irrelevant to economics, but man, it's pretty. It just makes me want to talk on the slide for a little bit longer. Apologies if this ends up being a little bit disjointed here and there. For our nine slides of Unit One Aero Study One Recap. I do have a little bit of a copilot here with Eleanor just over here hanging out helping us teach economics. So she might make a noise on occasion, but she means well and might have to pause and sort some things out along the way. So to get straight into it, we're going to be looking at all the basics of Area Study 1. I'm not going to read through all the introductory concepts here. Just know that each slide after this is one of these concepts. What we're going to do is I'm not going to define them and go into extreme detail on each slide. Basically, I'm going to explain them and give a little bit of detail and examples with them. So it's going to be brief, to the point. Basically the key things that you need to know, because you should have notes about these already if you've been studying economics and therefore, why am I just going to repeat your notes? So let's get straight into the first one, the basic economic problem of relative scarcity and the need for economic decision making. So the concept of relative scarcity is all about the fact that we have unlimited needs and wants and limited resources to fulfill those needs and wants. So therefore we have to make important decisions about resource allocation to maximize living standards. And there are inherent problems with that. There's a lot that goes into that. So one of the main things that we tend to talk about is the fact that businesses should produce what consumers demand, because that is going to maximize output, maximize sales, maximize profitability. One of the downsides of that is that consumers do not always demand the things that are good for them. Consumers demand a lot of socially undesirable goods. So things like gambling, cigarettes, alcohol. And if businesses only produced what consumers demanded, it might lead to much worse living standards overall. So some decisions need to be made about the production that needs to be done to maximize our living standards. And that's relative scarcity. So relative scarcity is deciding how to allocate our resources to maximize achieving everyone's needs and wants to the best of our ability, while also maximizing their living standards. Then we have the concept and applications of opportunity costs. So an opportunity cost is the next best Alternative or the production foregone when going with the next best alternative. So whenever you make a choice, you are giving up a chance to go with the next best alternative. So when you woke up this morning to go to your class, you gave up having a longer sleep in. When you went to the fridge and you poured milk on cereal, you gave up your chance to have a delicious warm milo, because that milk could have been used for that. This is true with your life as well as production choices. In economics, whenever a business decides what it wants to produce, it's giving up something else. This often comes up when we look at production possibility frontiers later on in this topic and later on in this PowerPoint. But every business, when they're deciding what production combinations to go with, they're giving up the next best alternative. So you would have seen a lot of businesses recently go crazy into producing hand sanitizer, and that's great because they see it as being profitable, but they're giving up producing the next best alternative if demand falls, which I think demand might be starting to fall in the market for hand sanitizer. Not too much. Still, we're in a pandemic. It is pretty crazy. But there are opportunity costs when you choose how to produce and what to produce. All right, so next up, we have our resources which are used to meet needs and wants, and they are natural labor and capital resources. So unnatural resources. We define them pretty simply as gifts of nature. And so these are things like air, water, soil, anything that occurs naturally on earth without any human interference. Then we've got our labor resources, which are the physical talents used to produce goods and services. So things like a doctor, a factory worker, a dishwasher in a restaurant, these are all labor resources. If you ever have to give an example of labour resources, just pick occupations and say, that is one, because you'll be sweet. Most people are just like, I don't know, worker. It's so bland. Be specific. And then we've got capital resources, which are the plant and equipment used in the production of goods and services. So things like a forklift, a factory, an oven, a delivery driver, owning a delivery truck, like these are all specific things used in the production of a good or service that can then help in the creation of it. And therefore they are a capital resource. Alright, so next up we've got the meaning and significance of positive and normative economics, as I tried not to lean too far forward because the sunlight just completely washes me out. So positive economics is all about the economics that occurs based on hard evidence. So when event A occurs, event B is definitely going to happen because of it. The example I used to always use for this is about school canteens. And so when I was first doing placement at a school, I was in Bacchusmarsh actually. And I remember the kids in my economics class were obsessed with the canteen's muffins because they're 50 cents. And then one day they were outraged because muffins were suddenly a dollar and they're the same muffins. And so because those muffins went up in price, the demand went down significantly. And that's positive economics, because event A happened and event B happened because of that. Then we've got normative economics, which is where decisions are made based on personal factors and internal beliefs. So the fact that some people buy red cars because they believe they go faster or they buy certain brands of things because they think they're better, even though they might not be. Choose an example that might appeal to any gamers out there. How people are loyal to Xbox or PlayStation or Nintendo based on their own personal factors. And at the end of the day, realistically you should just be going with whatever has the things that you want on them. So that's normative where it's based on personal factors or your internal beliefs. Alright, so next up we've got the purpose of economic activity and how it influences our material and non material living standards. So economic activity is a representation of all spending or expenditure and production in an economy over a period of time. So it's all the money spent and all the goods and services produced that represents economic activity. Material living standards are the physical tangible aspects that hold value in our lives. So that can be things like income, having a house, having a car, having a high chair. If you're Eleanor here, these are parts of our material living standards and non material living standards are the non tangible aspects that impact our quality of life. So things like happiness, sense of safety, education, health care, all these things that impact how good our life is. One massive one that's really important is leisure time. And so with higher rates of economic activity, it can have multiple effects on our material non material living standards. Some usually if economic activity is increasing, that means there's going to be more jobs, more incomes, and that means that people are going to be happier because they've got a sense of purpose from working and a higher income, therefore they're materially and non materially better off. In some cases they can actually negatively impact each other. The most common way to get a higher income is to Just work more hours and that's going to lead to worse non mature living standards as your sense of happiness and leisure time goes down significantly. Then we've got the three basic economic questions. What and how much to produce, how to produce and for whom to produce? So these are all about how we produce in the economy, so what and how much to produce? Well, these are for businesses to answer, what are they going to produce? Well, they're going to produce what consumers are demanding and the amount that they are demanding, how to produce it. Well, businesses are going to look at a variety of ways to produce it. Are they going to use machinery, are they going to use human labor? And this is going to help them decide how to produce things in the most efficient way and for whom to produce? Well, who are you producing this for? Like, are they going to actually purchase that? And therefore is it actually going to be profitable for you in the long term? If businesses answer these three questions well, it can help lead to higher rates of production and good profitability in the long term. Next up we've got the need for trade offs such as current versus future, short run versus long running and cost benefit analysis. These come up a lot when we look at production possibility frontiers, which we'll look at on the next slide. But these are all about looking at, when you're making production decisions, what's lost and gained in certain periods of time. So trade offs are all about what's lost and gained, either current versus future, short run versus long run, and just talking about what you're losing out on and what you're gaining because of that. Whereas cost benefit is all about what's lost and gained. Are you any better off because of it? So cost benefit analysis is when you're looking at, well, what are we losing from this? What are we gaining from this? Are we in a better position if we go with this route? And therefore should we go with it or not? Then we've got the production possibility model to illustrate the concepts of scarcity, choice, opportunity, cost and the underutilization of resources and efficiency. So there's a lot to this. The production possibility frontier is all about a hypothetical country choosing production combinations between two types of production which have the same value and cost the same to produce. So in this example here we've got refrigerators and cars and various production possibilities for them. Often when you're given these in an assessment, you'll have values given with them as well. And the correct answer of the best overall outcome is the one with the highest output overall that will maximize Living standards. We've got other points in here as well. So points like X and Y. So in this case, when you're at a point X, which is inside that curve, you're actually under utilizing your resources and producing at a point under your productive capacity. Is that right, Ellie? Is that right? Is that the point you're trying to make? I hope that helps them too. Then if you produce at point Y, that's actually outside your productive capacity. So it may actually be possible in the short term, but in the long term, producing at that level is not going to be sustainable and could actually cause damage in the economy by burning through resources at a rate faster than you can actually sustainably do. So most often when you're moving along that curve, that is when you're using all of your resources to their maximum potential. And whenever you're moving one point to another, there is a trade off. You can also look at cost benefits and also an opportunity cost. So what you're giving up to go with the next best alternative. Lastly, what we're going to look at is the two sector circular flow model, which is all about the transactions that occur between households and businesses. So with this we look at what households provide businesses and what businesses provide households with. So first up, the first thing that households provide businesses with are resources. So we provide them with our labor, we sometimes provide them with land or capital, and sometimes we provide them with just raw natural resources. And in return for that, so that's flow one, that's flow of resources from households to businesses. Then we've got flow two, which is the flow of incomes that occurs as businesses pay households for those resources that they have supplied. Then after that we get flow three, which is when households use that income to demand goods and services. So that's flow three, the demand for goods and services. And then businesses see that overall demand and that leads to Flow 4, which is when businesses produce those goods and services for consumers, which to produce those goods and services, they're going to need resources. So it flows all the way back to that original flow where they start demanding resources from households again. All right, this has been a quick 13 minute recap of the first half of Area 31. I hope this has been helpful to you. If you have any questions at all, feel free to let me know and I will elaborate further, whether that be through a comment, through an email, through a chat. More than happy to help. Next up, we're going to look at the consumer and business behavior side of things. The behavioral economics, which will be its own video that I'm going to put up at a later date. Thank you for watching and I hope you are doing well. I will see you next time. Goodbye.