HCI H2 Economics Lecture Notes 1 Central Problem of Economics

HWA CHONG INSTITUTION Year One H2 Economics 2022 Chapter #1: Microeconomics I – Introduction & Central Problem of Economics  Hwa Chong Institution Economics Unit. All Rights Reserved. 1.2.1 Introduction to Economics & Central Problem of Economics ` Name: ____________________ CT: 22______

HWA CHONG INSTITUTION Year One H2 Economics 2022 Chapter #1: Microeconomics I – Introduction & Central Problem of Economics  Hwa Chong Institution Economics Unit. All Rights Reserved. 1.2.2 Learning Outcomes Syllabus content 1.1 Scarcity and the Central Economic Problem 1.1.1 Scarcity, choice and resource allocation a. Concept of scarcity and the inevitability of choices by economic agents (consumers, producers and governments) b. Concept of opportunity cost and the nature of trade-offs in the allocation of resources 1.1.2 Rationale decision-making process by economic agents a. Understanding objectives of economic agents  Consumers – maximisation of utility  Producers – maximization of profits  Governments – maximization of social welfare b. Recognising constraints c. Gathering information and considering perspectives d. Weighing costs and benefits in decision-making* e. Recognising trade-offs f. Recognising intended and unintended consequences Note: *A marginalist approach to weighing costs and benefits is the expected approach. Cost-benefit analysis (CBA) is not required.

HWA CHONG INSTITUTION Year One H2 Economics 2022 Chapter #1: Microeconomics I – Introduction & Central Problem of Economics  Hwa Chong Institution Economics Unit. All Rights Reserved. 1.2.3 A LEVEL QUESTIONS IN RECENT YEARS TYS 2021 Q1 The market for bicycles is often said to generate external benefits such as reduced traffic congestion and reduced air pollution. (a) Explain how economic theory suggests consumers act rationally to decide whether or not to buy a bicycle, and how producers of bicycles act rationally to determine their level of output. [10] (b) Discuss how government intervention in the market for bicycles could be used to maximise social welfare and consider how likely it is that such intervention will be successful in achieving this aim. [15] TYS 2018 Q3 The proposed Cross Island MRT line would run through the Central Catchment Nature Reserve. An alternative route going round the reserve’s southern edge would preserve Singapore’s natural heritage and serve a much larger number of residents. The Land Transport Authority, LTA, says CHAPTER OUTLINE 1.1 INTRODUCTION TO ECONOMICS 1.1.1 What is Economics? 1.1.2 Why study Economics? 1.1.3 Approach to studying Economics 1.1.4 Scope of Economics 1.2 CENTRAL PROBLEM OF ECONOMICS 1.2.1 Scarcity, Choice & Opportunity Cost  Scarcity  Choice  Opportunity Cost  Law of Increasing Opportunity Cost 1.2.2 The Production Possibility Curve (PPC)  Definition of the PPC  Graphical Representation of the PPC  Scarcity, Choice, Opportunity Cost and the PPC  Shape of the PPC and Opportunity Cost  Economic Growth and the PPC 1.3 FRAMEWORK OF ECONOMIC ANALYSIS (TUTORIAL 1 is attached at the end of Chapter 1.3)

HWA CHONG INSTITUTION Year One H2 Economics 2022 Chapter #1: Microeconomics I – Introduction & Central Problem of Economics  Hwa Chong Institution Economics Unit. All Rights Reserved. 1.2.4 that the alternative route would entail longer travelling time, higher costs, more land acquisition and possibly bigger engineering challenges. Source: The Straits Times, accessed 24 May 2017 (a) Explain what needs to be considered when a government makes rational spending decisions about such projects. [10m] (b) Discuss whether the government should proceed with the proposed alternative route for the Cross Island MRT. [15m] TYS 2016 Q2 Singapore’s spending on healthcare is about 4% of GDP. This is lower than many developed countries. However, Singapore’s population is ageing and economic growth may not be as high as before. The government’s share of national healthcare expenditure is expected to rise from 33% in 2012 to over 40% in the future. (b) Discuss how the opportunity cost of increased healthcare expenditure differs, depending on whether it is financed by individuals or the Singapore government. [15m] TYS 2015 Q1 Prospective students and governments each make decisions that affect the scarce resources that are devoted to university education. (a) Explain the determinants of a rational prospective student’s decision on whether to participate in university education. [10] (b) Discuss the factors that go vernments should consider in allocating resources to university education. [15] TYS N2013 Q1 Economics assumes rational decision-making by consumers, firms and government. (a) Explain what is involved in rational decision-making both by consumers and by firms. [10] (b) Discuss whether rational decision-making by consumers, firms and government always leads to an efficient allocation of resources. [15] TYS N2011 Q1 Consumers and producers are generally assumed by economists to be motivated by self-interest. (a) Explain how, according to economists, the pursuit of self -interest can help to address the problem of limited resources and unlimited wants. [10] Note: Most questions on the Central Problem of Economics require understanding of concepts covered in other chapters, such as Chapter 6.1 on Economic Growth and Chapter 3 on Market Failure and Government Intervention. SYMBOLS  Once you see this ‘thinking-man’ icon, it means you are to stop to check your understanding of the concepts by attempting the questions in the space provided (open-book).

HWA CHONG INSTITUTION Year One H2 Economics 2022 Chapter #1: Microeconomics I – Introduction & Central Problem of Economics  Hwa Chong Institution Economics Unit. All Rights Reserved. 1.2.5 Chapter #1.1: INTRODUCTION TO ECONOMICS Conceptual Outline: Economics Definition: What Why Study Approaches Scope of is Economics Economics to Studying Economics Economics Language Definitions Diagrams Macro Micro & Explanation & Tables 1.1.1 WHAT IS ECONOMICS? Some of you might think that the study of Economics involves the following:  “Economics is something about stocks right?”  “You need to learn economics to work in banks right?”  “Economics is about studying money”  This ‘handy-man’ icon means you are to stop and attempt the tutorial questions which are either case studies or essays.  Why ‘handy-man’? Because it symbolizes problem-solving and effort.  You are to write out full answers on separate sheets of paper (open-book).

HWA CHONG INSTITUTION Year One H2 Economics 2022 Chapter #1: Microeconomics I – Introduction & Central Problem of Economics  Hwa Chong Institution Economics Unit. All Rights Reserved. 1.2.6 Whilst these statements and beliefs are not entirely wrong, the study of economics involves these things and more. Economics can be defined as a social science that involves the study of how individuals and societies choose to allocate scarce resources among alternative uses in an attempt to satisfy their unlimited wants. Some other definitions offered by famous economists include: Adam Smith (1723 - 1790) Moral Philosopher John Maynard Keynes (1883-1946) British Economist “Economics is the science which studies human behaviour as a relationship between the ends and scarce means which have alternative uses.” Lionel Robbins (1935) “Economics is the study of how societies use scarce resources to produce valuable commodities and