EFSAS Slides Chapter 1 and 3

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Chapter 1:
What economics
is all about
Learning outcomes
Once you have studied this chapter you should be able to explain
what economics is all about
• define economics
• define the important concept of opportunity cost
• describe a production possibilities curve or frontier
• distinguish between microeconomics and macroeconomics
• distinguish between positive and normative economics
• explain why economics is a social science
• identify some common mistakes in reasoning about
economics

What is economics?
• There are many definitions for Economics however one can define
economics as the study of how our scarce productive resources are used
to satisfy human wants.
• It should be obvious that economics has to do with the use of scarce re
sources to satisfy unlimited wants.
• The central elements of economics are therefore scarcity and choice.
• Economics also seeks to describe, explain, analyze and predict a variety
of phenomena such as economic growth, unemployment, inflation,
trade between individuals and countries, the prices of different goods
and services, poverty, wealth, money, interest rates, exchange rates and
business cycles.

Scarcity, choice and opportunity cost
Note that the following concepts are not the same
• Wants - are human desires for goods and services.

Therefore our wants are un limited.
• Needs - are necessities, the things that are essential for

survival, such as food, water, shelter and clothing. Needs,
• unlike wants, are not absolutely unlimited.
• Demand - there is a demand for a good or service only if

those who want to purchase it have the necessary means to
do so.
Illustrating scarcity, choice and
opportunity cost: the production
possibilities curve
Table 1-1 Production possibilities for the Wild Coast community
(Textbook page 6)

Illustrating scarcity, choice and opportunity cost: the production possibilities curve
Figure 1-1 A production possibilities curve for the Wild Coast

community (Textbook page 6)

Further applications of the production
possibilities curve
Box 1-2 Goods and services (Textbook page
7)
Figure 1-2 Improved

technique for producing
capital goods
(Textbook page 9)

Further applications of the production possibilities curve
Figure 1-3 Improved technique for producing consumer goods

(Textbook page 10)

Figure 1-4 Increase in the quantity or productivity of the available

resources (Textbook page 10)

Table 1-2 The production possibilities curve (PPC): a summary

(Textbook page 10)

Economics is a social science
• Economics is a science uses patterns to explain what is happening, to

predict what might happen and to assist policymakers to devise or
choose appropriate economic policies.
• Economics is a social science studies the behavior of human beings,
both individually and as groups.

Microeconomics and macroeconomics
• Microeconomics focuses on individual parts of the economy
• Macroeconomics is concerned with the economy as a whole

Positive and normative economics
• A positive statement is an objective statement of fact.
• A normative statement involves an opinion or value judgment.

Chapter 3:
Production,
income and
spending in the
mixed
economy

Chapter Outcomes
Once you have studied this chapter you should be able to

• describe how total production, total income and total spending in
the economy are related
• distinguish between stocks and flows
• describe the different sources of production and income
• distinguish between households and firms and show how their
decisions and activities are interrelated
• show how the government sector interacts with households
and firms
• show how the foreign sector interacts with the domestic
economy
• describe South Africa’s factor endowment
Production, income and spending
Figure 3-1 The three major flows in the economy (Textbook page
41)
Box 3-1 Stocks and flows (Textbook page

41) © VAN SCHAIK PUBLISHERS
Sources of production:
the factors of
production
• Natural resources (land)
• Labour
Box 3-2 Specialisation and the division of labour
(Textbook page 43)
• Capital
• Entrepreneurship
• Technology
• Money is not a factor of production
• The choice of technique
Sources of spending:
The four spending
entities
• Households
• Firms
Box 3-3 Different types of firms (Textbook page
47) Box 3-4 The goods market and the factor
market (Textbook page 48)
• The government
• The foreign sector
• Total spending: a summary

Putting things together: a simple diagram
Figure 3-2 The different components of production, income and

spending (Textbook page 50)

Illustrating interdependence: circular
flows of production, income and
spending
• Households and
firms
Figure 3-3 The circular

flow of goods and
services
(Textbook page 50)

Illustrating interdependence: circular flows of production, income and spending
Households and firms
Figure 3-4 The circular flow of income and spending

(Textbook page 51)

• Adding the
government
Figure 3-5 The

government in
the circular flow
of production,
income and
spending(Textboo
k page 51)

• Adding the foreign

sector
Figure 3-6 The foreign

sector in the circular flow
of income and spending
(Textbook page 52)

Adding the foreign sector
Figure 3-7 Financial
institutions in the
circular flow of
income and spending
(Textbook page 52)

• The overall picture
Figure 3-8 The major elements of the circular flow of income and
spending (Textbook page 53)

Thank You

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© VAN SCHAIK PUBLISHERS

© VAN SCHAIK PUBLISHERS

© VAN SCHAIK PUBLISHERS

• Wants - are human desires for goods and services.

• Needs - are necessities, the things that are essential for

• Demand - there is a demand for a good or service only if

© VAN SCHAIK PUBLISHERS

Figure 1-1 A production possibilities curve for the Wild Coast

© VAN SCHAIK PUBLISHERS

Figure 1-2 Improved

© VAN SCHAIK PUBLISHERS

Figure 1-3 Improved technique for producing consumer goods

© VAN SCHAIK PUBLISHERS

Figure 1-4 Increase in the quantity or productivity of the available

© VAN SCHAIK PUBLISHERS

Table 1-2 The production possibilities curve (PPC): a summary

© VAN SCHAIK PUBLISHERS

• Economics is a science uses patterns to explain what is happening, to

© VAN SCHAIK PUBLISHERS

© VAN SCHAIK PUBLISHERS

© VAN SCHAIK PUBLISHERS

© VAN SCHAIK PUBLISHERS

Once you have studied this chapter you should be able to

Box 3-1 Stocks and flows (Textbook page

• The foreign sector

• Total spending: a summary

Figure 3-2 The different components of production, income and

© VAN SCHAIK PUBLISHERS

Figure 3-3 The circular

© VAN SCHAIK PUBLISHERS

Figure 3-4 The circular flow of income and spending

© VAN SCHAIK PUBLISHERS

Figure 3-5 The

© VAN SCHAIK PUBLISHERS

• Adding the foreign

Figure 3-6 The foreign

© VAN SCHAIK PUBLISHERS

© VAN SCHAIK PUBLISHERS

• The overall picture

© VAN SCHAIK PUBLISHERS

© VAN SCHAIK PUBLISHERS

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