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1 Introduction 7
1.1 The Economic Problem 7
1.1.1 What is Economics? 7
1.2 Positive and Normative Economic Statements 8
1.2.1 Positive Economics 8
1.2.2 Normative Economic Statements 8
1.3 Micro and Macro Economics 8
1.4 Scarcity and Opportunity Cost 9
1.4.1 Scarcity 9
1.4.2 Opportunity Cost 10
1.5 Factors of Production 11
1.6 Economic Goods 11
1.7 Capital Goods and Consumer Goods 13
1.8 Value, Utility and Marginal Measures 13
2 Production Possibility Frontier & Indifference Curves. 16
2.1 Production Possibility Frontiers 16
2.2 Economic Growth 18
2.3 Full Employment and Unemployment 20
3 Economic Systems 23
3.1 Market, Planned and Mixed Economies 23
3.1.1 Command Economies 23
3.1.2 Free Market Economies 23
3.1.3 Mixed Economies 24
3.2 The Free Market Economy 24
3.2.1 Characteristics of a Market Oriented Economy 24
3.2.2 Advantages of a Market Economy 24
3.2.3 Disadvantages of a Market Economy 25
3.3 Transition Economies 26
3.3.1 The Problems of Transition 27
4 Specialisation and the Division of labour. 29
4.1 Introduction 29
4.2 Advantages and Disadvantages 29
4.3 Requirements for Specialisation. 30
4.4 Reducing Specialisation 32
5 International Trade and Comparative Advantage. 34
5.1 The Law of Comparative Advantage 34
5.2 Terms of Trade 37
5.3 Protectionism 40
5.4 Methods of Protection 40
5.5 International Trade Agreements 40
6 Price Mechanism: Demand, Supply and Equilibrium 43
6.1 Introduction 43
6.1.1 The Price System is a Control Mechanism 43
6.1.2 Free markets encourage economical use of resources 43
6.2 Demand 45
6.2.1 The Nature of Demand 45
6.2.2 The Demand Schedule 45
6.2.3 Movements along the Demand Curve 46
6.2.4 Shifts of the Demand Curve (Changes in Demand) 46
6.2.5 Factors Affecting Demand 47
6.3 Supply 48
6.3.1 The Nature of Supply 48
6.3.2 The Supply Schedule 49
6.3.3 Supply and Price 49
6.3.4 Shifts of the Supply Curve 50
6.3.5 Determinants of Supply 52
6.4 Equilibrium 54
6.4.1 Income and Substitution Effects 55
6.4.2 The Effects of Firms Entry to and Exit from the Market 59
6.5 Economic Rent 60
6.6 Transfer Earnings 61
6.7 Profit 61
6.8 The Interrelationship of Markets 62
6.9 Consumer and Producer Surplus 65
6.9.1 Consumer Surplus 65
6.9.2 Producer Surplus 66
7 Elasticity 71
7.1 Price elasticity of demand 71
7.1.1 Interpreting Demand Elasticity 73
7.1.2 Price Elasticity and Changes in Total Expenditure 75
7.1.3 What Determines Elasticity of Demand? 76
7.2 Income Elasticity of Demand 79
7.3 Cross Elasticity of Demand 81
7.4 Elasticity of Supply 82
7.4.1 Determinants of Elasticity of Supply 83
8 Taxes and Subsidies 90
8.1 Indirect Taxes 90
8.2 Producer Subsidies 91
9 Appendices 95