Study sheet: Introduction to Economics and Finance

📋 Course Outline

1. Scarcity and Economic Resources
2. Macroeconomic and Microeconomic Issues
3. Production Possibility Curve
4. Circular Flow of Income

📖 1. Scarcity and Economic Resources

🔑 Key Concepts & Definitions

• Scarcity : The central economic problem arising because resources are limited relative to human wants.

★ Must-know

📌 Economists study demand and supply and the importance of reconciling them in markets.

• The factors of production are:
  • labour
  • land and raw materials
  • capital

Further detail

📌 Actual demand and supply refer to currently realised market quantities, whereas potential demand and supply refer to possible quantities that could arise.

💡 Memory Hook

Unlimited wants versus limited resources

📖 2. Macroeconomic and Microeconomic Issues

🔑 Key Concepts & Definitions

• Opportunity cost : The cost associated with the choices made when resources are scarce.

★ Must-know

📌 Rational economic decision making requires doing more when marginal cost is less than marginal benefit and doing less when marginal cost is greater than marginal benefit.

• Macroeconomic issues include:

  • growth
  • recessions
  • unemployment
  • inflation
  • balance of trade
  • cyclical fluctuations

• Macroeconomic policy includes demand-side policy and supply-side policy.

Further detail

• The financial crisis of 2008–9 and the effects of the Covid-19 pandemic are examples of recession-related economic effects.

• The microeconomic objectives and efficiency types are:

  • efficiency
  • productive efficiency
  • allocative efficiency
  • equity

• Microeconomic choices concern:

  • what to produce
  • how to produce
  • for whom to produce

💡 Memory Hook

Macroeconomics studies aggregates, whereas microeconomics studies individual choices and markets

📖 3. Production Possibility Curve

🔑 Key Concepts & Definitions

• Production possibility curve : The production possibility curve shows the production choices available to an economy and links microeconomic choices to opportunity cost.

★ Must-know

• The production possibility curve illustrates choices and opportunity cost, including increasing opportunity cost.

Further detail

📌 In macroeconomic analysis, production within the production possibility curve represents production below the economy's possible capacity.

• Shifts in the production possibility curve represent changes in the production possibilities available to the economy.

💡 Memory Hook

Choices create opportunity costs, which produce trade-offs along the curve

📖 4. Circular Flow of Income

🔑 Key Concepts & Definitions

• Circular flow of income : A model of the interactions between firms and households through goods markets and factor markets.

★ Must-know

📌 Macroeconomic analysis of the circular flow examines the size of total flows, whereas microeconomic analysis examines individual markets and choices within goods and factor markets.

• In goods markets, the real flow consists of goods and services and the money flow consists of consumer expenditure.

• In factor markets, the real flow consists of the services of labour and other factors and the money flow consists of wages and other incomes.

Further detail

📌 Firms and households participate in both goods markets and factor markets within the circular flow.

💡 Memory Hook

Households provide factors → firms produce goods → households receive income → households spend

📊 Synthesis Tables

Goods and Factor Markets

Market	Real flow	Money flow
Goods markets	Goods and services	Consumer expenditure
Factor markets	Services of labour and other factors	Wages and other incomes