Economic SWAT notes – Basic Economic Concepts

(SWAT: Study Without A Teacher)

SWAT notes

Personal Resources: our personal resources refer to what we have. Our possessions are limited. We have limited means (skills money and time). What we have is our personal resources.

Economic Management: economic management involves the applying of skilled economic decision-making to make economic planning. It means for our economic management, we need to choose carefully from our alternatives so that it could lead well to manage our economy. It also refers to our skills to identify the different ways in which people obtain income and evaluate methods and consequences of spending incomes, saving incomes borrowing and avoiding personal losses.

Scarcity: the economic term scarcity is the basis of economics study and it occurs whenever a person’s wants and needs are greater than their access to their resource to satisfy them.

Economic Decision-Making: the economic decision-making is to decide how we will use our needs and wants. Economic management, choice and opportunity cost generally follows the decision-making.

SWAT notesMeans: our means are what we have (therefore, it can be our personal resources). This includes income (money and wealth), skills, knowledge and time. Our means are limited.

Needs: our needs are things we need to have essentially to live and survive. E.g. food, shelter, warmth and so on.

Wants: wants are things we would like to have but not essential in order to survive. E.g. mobile, television, chair and so on.

Choice: the economic term choice is the act of choosing something out of many alternatives.

Economics: the study of economics is to find how people and group use their limited means and resources to try to satisfy their unlimited means.

Opportunity Cost: when we make an economic decision, there is always an opportunity cost. An opportunity cost is the cost of giving up on something that is the next best alternative when we make a decision.

SWAT notes

Independent: the economic term independent means that someone (or something) is separated from someone (or something) and not connected. In economic terms, this might mean separated from the economy. (Self-sufficient)

Specialise: if someone specialises in something it means you concentrate on it with your time, skills and energy, especially in your work or when you are training.

Interdependence: the economic term interdependence, is the condition of people that all depend on each other.

Market: the term market occurs anywhere and anytime when a seller and a buyer trades goods and services.

Barter: the economic term barter is a trading system where goods (or service) are exchanged directly for other goods (or service).

Koha: the Maori economic term Koha, is a system of exchange used by the Maoris. One ‘iwi’ would ‘gift’ another ‘iwi’ some of their surplus (an amount over and above what is required) goods.

Double Coincidence of Wants: the economic term ‘double coincidence of wants’ is the problem of trying to find someone who has what you want and who wants what you have. This idea is essential when bartering.

SWAT notes

Medium of Exchange: the economic term medium of exchange is something that can be accepted in exchange for a range of goods or services. Medium of exchange was developed because barter did not work. (double coincidence of wants)

The five characteristics of money:

1. Portability (they can be carried around easily).

2. Durability (they last a long period).

3. Divisibility (they can be divided; $1.00 into 10 cents).

4. Scarcity (they were limited so had value).

5. Acceptability (they are recognisable so are accepted everywhere you go).

The four functions of money:

1. Medium of exchange

- enables trade to occur without the need to barter.

2. A Standard Value (Unit of Account)

- money enables us to compare the values of goods and services.

3. A store of value

- money can be kept (saved) and used later

4. Allows us to buy on credit – can buy now and pay later.

SWAT notes

Work: human labour or effort.

Working age population: all people in the population who are legally allowed to work. (15 years or over and not retired)

Labour force or work force: the amount of people in an economy (age 15-65 years old) who are willing and able to work. This includes both the employed and unemployed.

Employees: a person who is employed by a person to earn income.

Self-employed: a person who works for his / her business.

Voluntary work: a person who works outside his / her house, without any payment, in order to help the community.

Homemaker: someone that spends his / her time to manage and care the household. This includes making food, cleaning and tidying and childcare.

SWAT notes

Types of Income:

A) Income from Work:

-wages: based on a rate per hour or per week; e.g. cleaner, factory worker, shop assistant.

-salary: usually calculated in yearly basis but could be paid weekly, fortnightly or monthly; e.g. teacher, manager

-fee: a charge for a particular service provided by the income earner; e.g. architect, doctor

-commission: payment for selling goods or services on behalf of someone else; e.g. real estate agent, door-to-door salesperson

B) Income from owning things:

-rent: a charge made for the use of land or property; paid by tenants

-dividend: income received by the owners of shares in a company; paid by the company

-royalty: income received by writers and entertainers for the sale of books, recordings and copyright; paid by publishers

-profit: income received by the owner of a business for risk-taking and management; paid by the business

-interest: payment someone receives when they allow someone else to use their money; paid by the borrowers

-admission fees: income received by charging people to see something you own, e.g. private garden; paid by customers

-hire fees: paid to owners of equipment by people who borrow resources.

Additional notes:

Industrial Revolution: the transformation in the eighteenth and nineteenth centuries of countries such as Britain, into societies characterised by large-scale mechanised manufacturing industries.

Problems of barter:

1. Must have a double coincident of wants = you have what each other wants

2. Some goods are not easy to transport; e.g. animals

3. Some goods do not store well; e.g. ice cream

4. Some goods are not easily divisible; e.g. animals (like cows and horses)

Surplus: an amount over and above what is required

PIN = Personal Identification Number

EFTPOS = Electronic Funds Transfer at Point of Sale

Legal tender: currency that must legally be accepted in payment of a debt (in other words a seller can not refuse to accept the coins / notes that you offer)

Types of Goods and services

Free goods:-plentiful-no coste.g. wind, rain, sunshine

Economic goods:-are scarce-have a cost