1 Economics

o comes from Greek work ´´oikonomia´´ which means managing the economy.
o It is a social science that seeks to analyse and describe the use of scarce resources for production,
distribution, and consumption of wealth.
o It deals with everyday issues, analysing individual and corporate behaviour, as well as social and
political institutions.

1.1 Functions, object, and subjects of economics

 Cognitive function – examines and recognises the economic phenomena, laws and
processes that take place in society.
 Pragmatic function – seeks to explain and solve the problems of society in practise and
provide model producers.
 Methodological function – theoretical and methodological basis for other economic science
(sector economy, spatial economy, cross-sectional economy…)

 Economics is split into two realms:

- Macroeconomics (Big-picture) -> concerned how overall economy works, studies things like
employment and unemployment, gross and net domestic products, inflation. (object for
analysing is a nation)
- Microeconomics (Little-picture) -> how supply and demand interact in individual market.
(object for analysing is s single market)

 Economics is also divided into:

- Positive economics – tells us how economics really work, development and testing of
positive statements about the world.
- Normative economics – tells us how economics should work, normative statements about
what it should be, it cannot be tested.

 Fundamental economic units:

- Households – people living under one roof. (buy goods and services : sells labour, land,
capital)
- Companies – formed by profit – seeking entrepreneurs who employ resources to produce
goods and services. (main aim: make a profit, provide services, buy factors of production)
- Government – they get taxes and fees form households and companies, in exchange provide
them with grants, social benefits and public goods and services (sidewalk, public lighting,
public radio…)

Three key questions:

1. What to produce?
2. How to produce the products?
3. Who will buy the products?
 3 Economic order

 Social domain that emphasises the practises, discourses, and material expression associated with
the production, use, and management of resources.
 System of trade and industry by which the wealth of a country is made and used.

o It is divided into two realms:

- Macro – economy -> represents the economic activity of interconnected and
interdependent market subjects within the national economy.
- Micro – economy -> focused on economic activity of individual market subjects
(households, companies, government)

3.1 Economy as a system

 Regulate what you can and can´t do at the market.

 Mean by which governments organise and distribute available resources, goods and services across
region or country.
 Regulate factors of production land, labour, and capital.

o They are divided into 4 systems:

- Traditional economy:
 based on goods, services and work that follow certain trends
 it relies on people.
 little division of labour
 basic and most ancient

- Command economy:
 there is dominant and centralised authority (government)
 authority controls everything that happens within the economy.
 most used in socialist countries. (North Korea, China…)

- Market economy:
 there is little government interference.
 economic decisions are made by individuals.
 regulation comes from people and relationship between supply and
demand.
 theoretical, it does not exist.
 there is no possibility of no interference of government.

- Mixed economy:
 market and command economy
 economic system under strict regulatory control in certain segment of
a company
 3.2 Factors of production

● land – refers to all natural resources used to produce goods and services.

● labour – effort that people devote to a task for which they are paid.

● capital
o physical – human-made objects used to create other goods and services.
o human – knowledge and skills of a workers
o financial – money used to buy physical and human capital.

● elementary factors of production – inputs without which company transformation process could not
happen (workforce, assets)
● derived factors of production – provide control of company transformation process.

3.3 Basic economic concepts

o focus on efficiently build wealth and prosperity over time.

o has an impact on every moment of our lives because, it is a study of choices and why and how
we make them.

 The law of scarcity

- resources (land, labour, capital) are limited, not infinite.
- if resources are infinite, everything should have been free, and while it is not, scarcity
must exist.
- Scarcity is an idea that an economic system cannot possibly produce all the products
that consumers want.

 The production possibility frontier (curve)

- generated because of the law of scarcity.
- curve representing the maximum output possibilities of two different products,
given a set of inputs consisting of fixed factors of production.
- production of one product can only increase when the production of the other
product is reduced.
- represents the point at which a country's economy is most efficiently producing its
products and, therefore, allocating its resources in the best way possible.

- A, B, C, D represent the most efficient use of resources.

- G, E represent an inefficient use of
resources
- F represents the goals that the economy cannot attain with its
a a a present levels of resources..