NJC 2025 SH1 H1 H2 Econ Ch1 Seminar Notes (Final)

CHAPTER 1 The Central Economic Problem 1 SCARCITY, CHOICE & OPPORTUNITY COST 1 1.1 WHAT IS ECONOMICS 1 1.1.1 WHAT ARE RESOURCES 1 1.1.2 POSITIVE AND NORMATIVE ECONOMICS 3 1.2 THE TWO MAIN BRANCHES OF ECONOMICS 3 1.3 SCARCITY, CHOICE AND RESOURCE ALLOCATION 4 2. RATIONAL DECISION-MAKING 6 2.1 HOW RATIONAL DECISION-MAKING IS USED 6 2.1.1 RATIONAL DECISION-MAKING AS AN OPTIMISATION PROBLEM 6 2.1.2 DECISION-MAKING FRAMEWORK 7 2.1.3 RATIONAL DECISION-MAKING AND THE MARGINALIST PRINCIPLE – WEIGHING COSTS AND BENEFITS 8 2.2 CONCEPTS OF EFFICIENCY 10 2.3 THE PRODUCTION POSSIBILITY CURVE 12 2.3.1 WHAT DOES THE PPC ILLUSTRATE? 13 2.3.2 THE CONCEPT OF INCREASING OPPORTUNITY COST 15 2.3.3 ECONOMIC GROWTH AND SHIFTS OF THE PPC 16 3. CONCLUSION 19 4. DECISION-MAKING EXAMPLE 20 5. APPENDIX: HOW DIFFERENT TYPES OF MARKET ALLOCATE RESOURCES 23

2025 SH1 H1 / H2 Economics Chapter 1 National Junior College H1 / H2 Economics - 8843 / 9570 1 1. SCARCITY, CHOICE & OPPORTUNITY COST 1.1 WHAT IS ECONOMICS Economics is a social science that studies the allocation of scarce resources to the production of goods and services used to satisfy consumers ’ unlimited wants. ✴ Wants refer to all goods and services people would consume if they had unlimited incomes. ✴ Resources are inputs used to produce goods and services. Wants of people are unlimited. The resources used to satisfy these wants are, on the other hand, limited. Economists study how people make use of the scarce resources to satisfy their wants. They study how individuals and society maximise their level of satisfaction, given the problem of scarcity. 1.1.1 WHAT ARE RESOURCES? Resources (Factors of Production) Resources or factors of production can be divided into four broad categories: land, labour, capital and entrepreneurship. Learning Objectives Explain the problem of limited resources and unlimited wants Identify and provide examples for the factors of production Distinguish between the term financial capital and physical capital Explain the concept of opportunity costs and trade-offs DEFINITION: Scarcity is the problem arising from limited resources and unlimited wants. That is, it is the excess of human wants over what can actually be produced with limited resources to fulfill these wants.

2025 SH1 H1 / H2 Economics Chapter 1 National Junior College H1 / H2 Economics - 8843 / 9570 2 Land This includes all those productive resources supplied by nature. This means that it includes not only land in the conventional sense in terms of plots of land but all those resources freely supplied by nature such as rivers, trees and minerals. Land resources can be renewable e.g. forests or non - renewable such as oil and natural gas. Labour Labour is the human effort – both physical and mental – directed to the production of goods and services. Labour resources are often made more productive through education or training. Capital Capital refers to physical capital which is man-made resource used in the further production of other goods and services rather than being consumed for their own sake. Common examples of capital include machines, buildings, factories, offices, tools and equipment. Capital does not mean money to an economist. Entrepreneurship Entrepreneurship refers to the managerial ability that involves the organising of factors of production and entrepreneurs are rewarded in the form of profits by taking the risks related to the production of goods and services. It is a human resource which is separate from labour. Without entrepreneurship, virtually no business organisation can exist. THINK ABOUT IT: 1. What is the difference between financial capital and physical capital? NOTE: The productivity of capital is limited by the state of technology.

2025 SH1 H1 / H2 Economics Chapter 1 National Junior College H1 / H2 Economics - 8843 / 9570 3 1.1.2 POSITIVE AND NORMATIVE ECONOMICS Positive Economics (value-free arguments) Seeks to describe and explain economic facts and events observed objectively ✴ A statement that in principle, is capable of being refuted by reference to evidence. Example: More people will own cars when the government subsidies the purchase of cars. Normative Economics A statement of value or subjective opinion that cannot be proved or disproved by an appeal to facts ✴ Looks at the outcomes of economic behaviour and questions whether they are good or bad Example: The government should subsidise the purchase of cars. 1.2 THE TWO MAIN BRANCHES OF ECONOMICS Economics is traditionally divided into two main branches – microeconomics and macroeconomics. The economist studies the real world at both the micro and macro level. The study of both microeconomics and macroeconomics centre on the problem of scarcity and the maximisation of welfare of society. Microeconomics is the branch of economics that studies the individual parts of the economy, such as markets of specific goods and services or the behaviour of individual economic agents. It is concerned with the demand and supply of particular goods and services and resources. In microeconomics, economists analyse how individual consumers and producers behave, examining how they interact with one another in markets. Some examples of microeconomic questions are: Why are people buying more smart phones? How would the removal of subsidies on rice crops affect rice production? NOTE: Positive Economics provides the facts and basis for which Normative Economics based on one’s values and judgment is considered. NOTE: In Senior High 1, the focus will be on Microeconomics which will be covered in Chapters 1 to 4 for H2 and Chapters 1 to 3 for H1. In Senior High 2, the focus will be on Macroeconomics that will be covered in Chapters 5 to15 for H2 and Chapters 5 to 14 for H1.

2025 SH1 H1 / H2 Economics Chapter 1 National Junior College H1 / H2 Economics - 8843 / 9570 4 Macroeconomics is the branch of economics that studies the entire economy. As such, it is concerned with economy-wide phenomena such as changes in unemployment, the general price level and national income. 1.3 SCARCITY, CHOICE AND RESOURCE ALLOCATION All countries face the central economic problem of scarcity. Since human wants are virtually unlimited, whereas the resources available to satisfy these wants are limited, scarcity makes it necessary for us to make decisions on how the limited resources should be utilised. In trying to obtain the highest level of consumer satisfaction from the available resources, choices have to be made. In any society, in order to allocate scarce resources, 3 key questions need to be addressed: ✴ What to produce, and how much to produce? Since there are insufficient resources to produce everything that people want, the society has to decide which goods and services are to be produced and how much of each good/service should be produced. ✴ How to produce? Once the society has decided what goods and services to produce and how much of each good / service to produce, it has to decide how to produce each of them. What resources are to be used in the production of the good/service and in what quantities? Will labour be used to produce cars or will car manufacturing be automated? Will electricity be generated by coal, oil or natural gas, or a combination of these? ✴ For whom to produce? Once the goods and services are produced, who will get to enjoy these goods and services? In other words, how will the goods and services be distributed among the population? Is it based on the ability to pay for the good? Will the goods and services be enjoyed only by those who have the means? What about the retirees, handicapped, and the young? Or is it rationed by the government?

2025 SH1 H1 / H2 Economics Chapter 1 National Junior College H1 / H2 Economics - 8843