PART 1 ECONOMICS This is the study of how societies allocate scarce resources in an attempt to meet the virtually unlimited

wants of the consumer. It encompasses all issues which relate to the production, distribution and consumption of goods and services. Examples of such issues include: The working of the price system in an economy and the role of state intervention in an economy. The determination of price and output of individual goods and services in competitive and monopolistic markets. Impact of production and consumption on environmental pollution. Determinants of the distribution of income and wealth and causes of poverty. Nature of the economic problem The fundamental economic problem arises due to scarcity Scarcity is when there are insufficient resources to satisfy everyones wants and needs. We can therefore conclude that the economic problem is that of allocating scarce resources among the competing and virtually limitless wants of consumers in society. The production of goods is necessary because it enables individuals to satisfy wants. We note that advances in technology bring new wants and new ways of satisfying those wants. Eg cameras, tv etc Having too little factors of production is seen as a cause of the economic problem.

Factors of Production Land Labor Capital Enterprise Land Natural occurring resources used for production purpose Examples: Earth on which mills are built Water in which fish is found Raw materials used to produce goods Labour Manual and mental effort to produce or deliver goods and services People who are willing or able to work are known as labour work force. Examples: Clerks Computer technician Economics Teacher Capital Manmade goods to produce other goods and services, includes the finance machinery and equipment needed to produce other goods. Capital is classified into capital goods and consumer goods Examples: Machines Factories Roads www.fetsystem. V I S I O N M A T E R I A L B Y F E T S Y S T E M
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Enterprise This is the skill and risk taking ability of the people who bring the other 3 factors of production together to produce goods and services. The person who does this is referred to as an

entrepreneur. In this process they do the decision making and risk taking.

Goods can be classified into two categories i.e Free goods: air, sunshine, these are available free of charge. Economic goods: these are scarce goods that have monetary value attached to them. Opportunity cost Scarcity of goods calls for choice on society as the range off wants it wishes to satisfy. Deciding to satisfy A means one has to sacrifice B. The consequence of scarcity is that all societies have to make choices about what goods and services to produce. More of one good means less of the other. Opportunity cost can therefore be defined as the next best alternative foregone when a choice is made. Opportunity cost is never in money value. Opportunity cost is the benefits which could have been received by taking an alternative action. Circumstances where opportunity cost is present Opportunity cost and consumers Opportunity cost and workers Opportunity cost and producers Opportunity cost and government

Situations Themba can buy a ball or a pen. He decides to buy the pen. The opportunity cost of buying the pen is ball. Musa can buy a 1 cd or a burger meal. He decides to buy 1 cd. The opportunity cost of buying 1 cd is burger meal Situations The government of Swaziland can either spend E2 million on roads or computer technology. It decides on spending on roads. The opportunity cost of the building the road is computer technology Economic Systems: Economic systems answer the economic questions differently. What are these economic questions? What to produce: what to produce will most likelely be determined by what goods businesses think will be profitable. How to produce: You need to decide how to produce i.e the combination of resources to be eployed in production.

For whom to produce: a society also needs a mechanism to determine how the output of goods and services is shared among its members. Market economy In a market economy, resources are allocated through the price mechanism, and the ownership and control of such important resources as land and capital are in the hands of the private firms and individuals. Property laws gives owners the right to make decisions concerning access to these resources and to determine the purpose for and the

mannerin which they are to be used. A good example of a market economy is the USA. Charicteristics of a market economy Free enterprise Self interest The profit motive of the business Private ownership of all productive resources Absence of government intervention in the operation of the economy Strong competition amongst businesses in supplying goods and services to their customers In this economic system, it is through the price system that resources are allocated. The fundamental questions of what , how and for whom are answered in markets through the forces of demand and supply. The question of what to produce will be determined by what goods businesses think will be profitable. Businesses will produce goods and services that will earn them the highes amount of profit. On how to produce, businesses will seek the least cost combination of factors of production. And for whom to produce will be determined by consumers who make their emalangeni votes in the market by demanding the best priced goods and services. Command economy This is an economy in which resources are allocated by a central planning authority appointed by the state. In this economy, key industries are controlled and owned by the state. An economy leaning towards being a command economy could be Cuba. It is therefore fitting to conclude that the command economy has the following charicteristics.

 All productive resources are owned by the government. There is no profit motive. All production decisions are made by a central planning authority. They answer the economic questions There is no price system Government regulates all prices including workers wages. Mixed economies Because pure market and pure command economies have so many disadvantages and weaknesses, most countries operate on mixed economies. A mixed economy takes the best aspect of market and command economies and makes use of them. It is true that in mixed economy, we have a public sector operating together with the private sector. The role of government is to set the rules and regulation for the efficient operation of the economy. Government is also responsible for levying taxes and setting its own businessesin order to influence patterns of consumption and pproduction. A mixed economy where the private sector is much larger than the public sector is known as a mixed market economy. Eg South Africa. A mixed economy with a small private sector and a much larger public sector is called a mixed command economy. Eg China

Production possibility curve (PPC)

This graphically shows the different combinations of goods a country can produce using all its available resources efficiently. As well as measuring opportunity cost, the slope of the ppf could be intepreted to measure the rate at which food can be transformed into clothes. The slope of the ppf is called the marginal rate of transformation.

Where the ppf is a straight line, the opportunity cost and the marginal rate of transformation remain no matter how much cloth is produced. Also known as constant opportunity cost. However, the assumption of constant opportunity cost is very unrealistic since factors of production cant be equally efficient. Some could be efficient in production of cloth and some in the production of food hence we have a ppc that is concave to the origin.

From the diagram above, we note that the production of 1m cloth requires that AC tonnes be given up. For 2m, the requirement is that cd be given up and for 3m the requirement is that DE be given up. From the concavity, it must be true that EF > DE > CD > AC and so the opportunity cost of food in terms of cloth increases with more cloth produced. It is therefore, concluded that the ppf provides us with an illustration of the problem of scarcity and choice facing a country when deciding what goods and services to provide.

PART 2 MARKETS