Transcript Economic Framework Powerpoint

Economic Framework
Overview
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What is Economics?
What are the Factors of Production?
Needs v Wants
Opportunity Cost
Economic Systems
Economic Growth
Inflation
Interest Rates
Economics
• Is the study of how individuals,
businesses and governments with
limited resources make choices.
Resources
• Are things such as land, machinery,
workers, materials, oil, crops, money.
• They are used in the production of
goods and services.
The Factors of
Production
• Are those scarce resources which we
use to produce wealth.
4 Factors of Production
• Land
• Labour
• Capital
• Enterprise
Land
• All things supplied by nature.
• Eg. water, natural gas, oil,
coal, minerals, trees……..
• The payment/reward for land
is rent.
Labour
• The human element in the
production process.
• Eg. employees, builders,
carpenters, factory workers…..
• The reward for labour is
wages.
Capital
• All man-made things that help
produce goods.
• Buildings, machinery…
• The reward for capital
investment is interest.
Enterprise
• Taking the risk to sell new
product/idea..
• Eg. Bill Cullen, Richard Branson…
• The reward for enterprise is profit.
• The risk of enterprise is loss.
Example: Bread
Land
Wheat
Labour
Farmer, baker
Capital
Tractor, oven, bakery
Enterprise
Cuisine de France
Needs
• Are essentials required for survival.
• Basic needs.
• Food, shelter, clothing.
Wants
• Are anything in excess of our needs.
• Things we can live without.
• TV, holidays, i-pod………………
Opportunity Cost
• The opportunity cost is the sacrifice of
the item you must do without when you
have to make a choice between two items
you want to produce or purchase.
Opportunity Cost
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Example
I have €2.00.
I can buy ice-cream or Pringles.
I choose ice-cream.
Financial cost = €2.00
Opportunity cost = Pringles.
Economic System
Is how a country makes decisions
about their factors of production.
An Economic System is important
to ensure the economy is
controlled and run properly.
1. Centrally Planned Economy
Communism
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All industries are owned & controlled by
the government.
Eg China
2. Free Enterprise Economy
Capitalism
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All industries are owned by private
entrepreneurs.
Eg. USA
(is the closest to free market model)
3. Mixed Economy
• Some industries are controlled by the
government & some are controlled by
private entrepreneurs (business people).
Eg. Ireland
Economic Growth
• Occurs where there is an increase in
the amount of goods and services
produced in a country from one year
to the next.
Advantages of economic
growth
• Increase in standard of living
• More employment will be create
• More money available for social
welfare, health and education
Explain
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GNP
Gross National Product
GDP
Gross Domestic Product
• The total amount produced in a country.
• + = Growth
• - = Recession
Formula
• Change
• Original
X 100
Example 1
• 2009 100 million produced in Ireland
• 2010 95 million produced in Ireland
• - 5 million
• 100 million
X 100 = -5%
Recession
Example 2
• 2009 200 million produced in USA
• 2010 220 million produced in USA
• 20 million
• 200 million
X 100 = + 10%
Growth
Inflation
• Is an increase in the general level
of prices/cost of living from one
year to the next.
• It is calculated by the Consumer
Price Index (CPI).
Consumer Price Index
• Is the measure of inflation.
• The Central Statistics Office (CSO)
conducts a survey of prices every
few months.
• This tells us if prices are rising or
not.
What causes inflation?
• Too much money in circulation.
• Interest rates too low.
• Increase in oil prices.
ECB
• The European Central Bank tries to
control inflation.
• See Inflation Monster DVD
Formula for calculating
rate of inflation
Increase in price x 100%
______________
Original Price
Example
• Cost of living in 2007 is €9000
• Cost of living in 2008 is €9600
• Rate of Inflation =
€600
x100%
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€9000
• =6.6%
Benefits of low inflation
• Economic growth is aided
• Prices are stable
• Wage demands are lower
Deflation
• Is when prices are falling.
• While this may seem good it is not.
• Consumers will delay spending in case
prices fall further.
• This may lead to unemployment.
Interest Rates
• Is the cost of borrowing.
• Irish rates are controlled by the
European Central Bank
Benefits of low interest
rates
• Mortgages and loans will be cheaper.
• Encourages new investment.
• Increased consumer spending.
Disadvantages of high
interest rates
• Discourages new investment.
• Reduces consumer demand.
• Increases business costs.
Recap
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What is Economics?
What are the Factors of Production?
Needs v Wants
Opportunity Cost
Economic Systems
Economic Growth
Inflation
Interest Rates