RICentral Problem of Economics

CONTENTS: 1. What is Economics? 2. Scarcity, Choice and Opportunity Costs 3. The Decision-Making Framework 4. The Production Possibility Curve (PPC) Model TUTORIAL PACKAGE • Section A: Starter Questions • Section B: Short Structured Questions • Section C: Discussion Questions • Section D: Mind Map RAFFLES INSTITUTION YEAR 5 ECONOMICS 2025 LECTURE NOTES ECONOMICS CENTRAL PROBLEM OF ECONOMICS

Raffles Institution Economics Department RAFFLES INSTITUTION YEAR 5 ECONOMICS 2025 CONTENTS 1 WHAT IS ECONOMICS? ........................................................................ 3 1.1 INTRODUCTION TO ECONOMICS ............................................... 3 1.2 MICROECONOMICS VS. MACROECONOMICS ........................... 3 2 SCARCITY, CHOICE AND OPPORTUNITY COST ................................ 4 2.1 SCARCITY ..................................................................................... 4 2.2 RESOURCES ................................................................................. 5 2.3 INEVITABILITY OF CHOICES – MAKING RATIONAL CHOICES .. 5 3.1 RATIONAL DECISION-MAKING BY ECONOMIC AGENTS ........... 8 3.2 MAKING RATIONAL DECISIONS USING MARGINALIST PRINCIPLE ................................................................................................ 9 3.3 RATIONAL DECISION-MAKING ON AN ECONOMY-WIDE PERSPECTIVE ........................................................................................ 12 4 THE PRODUCTION POSSIBILITY CURVE (PPC) MODEL ................. 14 4.1 SCARCITY AND PPC ................................................................... 14 4.2 CHOICE AND PPC ....................................................................... 15 4.3 OPPORTUNITY COST AND PPC ................................................ 15 4.4 EFFICIENCY AND PPC ............................................................... 15 4.5 MOVEMENT FROM A POINT WITHIN TO A POINT ON THE PPC 16 4.6 FACTORS CAUSING SHIFTS OF THE PPC................................ 16 5 CONCLUSION ...................................................................................... 17 TUTORIAL PACKAGE ................................................................................ 19 APPENDIX 1: THE ECONOMIC DECISION-MAKING PROCESS .............. 25 Lecture Objectives / Checklist After the series of lectures, students should be able to:  Differentiate between microeconomics and macroeconomics  Differentiate between positive and normative statements  Explain the central problem of economics (scarcity) and the inevitability of choice by economic agents  Define and explain the concept of opportunity cost and the nature of trade- offs in the allocation of resources  Explain rational decision making by economic agents o Recognise constraints o Weighing costs and benefits in decision making o Recognise intended and unintended consequences  Use the PPC model to explai