1.1 What is economics?

• Economics studies social choices about resource use and economic well-being

• Microeconomics studies individual markets; macroeconomics studies whole economies

• The nine key concepts provide the lens for analysing economic decisions

• Factors of production are land, labour, capital, and entrepreneurship

• Scarcity exists because unlimited needs and wants face limited resources

• Scarcity creates opportunity cost, trade-offs, and sustainability challenges

• Free goods do not require opportunity cost in the same way as scarce economic goods

• Societies decide what and how much to produce, how to produce, and for whom to produce

• Answers differ across free market economy, planned economy, and mixed economy systems

• Market versus government intervention provides different ways to allocate resources

• PPC shows scarcity, choice, opportunity cost, unemployment of resources, efficiency, actual growth, and growth in production possibilities

• Opportunity cost can be increasing or constant depending on model assumptions

• Diagram: PPC illustrating choice, opportunity cost, unemployment, actual growth, and growth in production possibilities

• Diagram: PPC showing increasing versus constant opportunity cost

• Circular flow shows interdependence between households, firms, government, banks, financial sector, and foreign sector

• Leakages and injections affect the flow of income in an economy

• Diagram: circular flow of income model with leakages and injections