Unit Title: Economic Principles and Their Application to Business Level: Diploma in Business Management Learning Outcome: 1.
Unit Code: Econs
Candidates will be able to explain the problem of scarcity, the concept of opportunity cost, the difference between macroeconomics and microeconomics and the difference between normative and positive economics.
Indicative Content: 1.1 Scarcity is a situation where there are insufficient resources to meet all possible demands simultaneously. Note, this is related to, but different from, the concept of excess demand in demand and supply analysis. Scarcity implies an opportunity cost. If you could produce as much of any combination of goods as you like, because resources are unlimited, then there is no sense in which in order to gain an extra unit of one good there need be some sacrifice, in terms of a reduction in the production, of another good. However, where resources are scarce, the extra production of a good X requires extra resources, which must be taken from the production of other goods, say Y. The opportunity cost of this extra unit of good X is the number of units of good Y that have to be given up in order to release the resources needed to provide the extra unit of X. Scarcity implies that with given resources there is a maximum amount of good Y that an economy can produce for any given production of good X. The production possibility frontier represents this statement in a graphical form. The economy can produce any combination of good X and Y on or below the frontier. The slope of the production possibility frontier therefore measures the amount of good Y that has to be given up to produce an extra unit of good X. This is a definition of the opportunity cost of X. 1.2 A free market economy is one in which the pricing and hence allocation of resources is determined solely by the interaction of supply and demand. In contrast, a command economy relies on governments to allocate resources. A mixed economy,...