Basic Economics Notes


📘 Basic Economics Notes

1. Definition of Economics

  • Economics is the study of how people allocate limited resources to satisfy unlimited wants.
  • Two main branches:
    • Microeconomics – Study of individual markets, consumers, and firms.
    • Macroeconomics – Study of the economy as a whole (GDP, inflation, unemployment, etc.).

💸 Basic Economic Concepts

2. Scarcity

  • Resources (land, labor, capital) are limited.
  • Scarcity forces choices and trade-offs.

3. Opportunity Cost

  • The value of the next best alternative foregone when making a decision.

4. Demand and Supply

  • Demand: Quantity of a good consumers are willing and able to buy at different prices.
  • Law of Demand: Price ↑ → Quantity demanded ↓ (inverse relationship).
  • Supply: Quantity of a good producers are willing to offer at different prices.
  • Law of Supply: Price ↑ → Quantity supplied ↑ (direct relationship).
  • Equilibrium: Where demand equals supply.

📈 Macroeconomic Indicators

5. Gross Domestic Product (GDP)

  • Total value of goods and services produced in a country in a year.
  • Real GDP is adjusted for inflation.

6. Inflation

  • A general increase in prices.
  • Measured by the Consumer Price Index (CPI).

7. Unemployment

  • Percentage of the labor force that is jobless and actively seeking work.
  • Types: frictional, structural, cyclical, seasonal.

🏦 Monetary and Fiscal Policy

8. Monetary Policy

  • Controlled by central banks (e.g., interest rates, money supply).
  • Tools: open market operations, discount rate, reserve requirements.

9. Fiscal Policy

  • Controlled by government (taxing and spending).
  • Expansionary policy: Increase spending or cut taxes to stimulate growth.
  • Contractionary policy: Decrease spending or raise taxes to reduce inflation.

🌍 International Trade

10. Comparative Advantage

  • A country should specialize in producing goods where it has a lower opportunity cost.

11. Trade Barriers

  • Tariffs, quotas, and embargoes restrict free trade.


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