Needs: Items that an individual needs to survive e.g. food, shelter, clothing. Wants: Items that an individual desires but does not necessarily need e.g. TV, big house. Economics: The study of how scarce resources are used to produce the goods & services that people need and want. Opportunity cost: Choices lost as a result of a decision made. Limited Resources: There are not enough resources to do all the things that need to be done The Factors of Production Factor Explanation Payment for its use Land Labour Capital Enterprise All things supplied by nature for producing goods e.g. land, sea, mines, forests > raw materials are extracted from the ground & turned into finished goods. People employed to produce a good/provide a service > any productive human effort e.g. block layer, hairdresser. These are man-made objects which help in further production e.g. roads, factories, machinery. Someone who has a business idea & is willing to take the risk of setting up a business to make a profit/seeing an opportunity & investing in it e.g. entrepreneur. Rent Wages Interest Profit Economic Systems Free Enterprise Centrally-planned Mixed Economy All resources are privately owned. Government plays no role in economic activity. USA All resources are publicly owned Government controls all economic activity China Some industries are controlled by the government while others are controlled by private entrepreneurs. The government provides schools, hospitals, etc. Ireland.
Economic Growth The increase in the quantity of goods and services produced in an economy from one period to the next. Official measure: Gross National Product (GNP) How can a country achieve economic growth? Keep interest rates & inflation down. Keep government borrowing down. Increase exports. Advantages of economic growth: Higher standard of living. More employment created & workers will earn more. More tax revenue for the government. More money available to government to provide services. More goods and services will be available for consumption. There will be a decrease in the national debt as the government will have to borrow less money. Less emigration / increased immigration. What is a recession? A general slowdown in economic activity in an economy over a period of time. Economic productivity decreases. Unemployment rate increases. Household & business income fall. Formula: Increase in production (GNP) x 100 Last year s production (GNP) Inflation A sustained increase in the general level of prices from one period of time to another. (Deflation is the opposite) Official measure: Consumer Price Index (CPI). Causes: When the costs of producing goods increases, the price of the goods will also increase. An increase in the taxes which affect price will cause prices to increase e.g. VAT, Excise Duties. If there is too much demand for goods and services and not enough supply, then prices will rise. Benefits of a low inflation rate: There will be less demand by trade unions for wage increases. Irish goods/services being sold overseas (exports) may be more competitive. Businesses may find it easier to control costs > goods can be produced cheaply, easier to sell abroad. Foreign firms will be attracted to Ireland. Consumers may be encouraged to save more. Formula - rate of inflation: Increase in price x 100 Previous price
National Budgeting The national budget is a financial plan of the government s expected future income & expenditure for a period of time, usually a year. Prepared in Ireland by the Department of Finance. Capital Expenditure: Non-recurring, once off expenditure on buying fixed assets which will have long term benefits for the country e.g. building new schools, hospitals, airports, railway station (infrastructure). Current Expenditure: Spending on a regular basis for the day to day running of the country e.g. wages of public servants, social welfare. Current income for the government: Income received by the government on a regular basis which is used to cover expenditure VAT (Value Added Tax - tax on goods/services) Income Tax (tax paid by all workers through PAYE system) Customs Duties (tax on goods coming into the country) Excise Duties (tax on certain goods produced in the country e.g. whiskey, cigarettes, beer) Corporation Tax (tax on the profits of companies paid to the government, 12.5% rate in Ireland). DIRT (Deposit Interest Retention Tax - tax on interest earned in a deposit A/C) Capital income for the government: Once-off income received by the government which is used for capital expenditure. Sale of state-owned companies to a private body (privatisation) e.g. Aer Lingus EU grants National Debt: The total amount of money that has been borrowed by the government over the years which interest has to be paid on. Debt servicing: Paying the interest on the National Debt. How to prepare a National Budget If you are asked to prepare a national budget Use a title (e.g. National Budget 2017) Using the information provided in the question, draw up a list of income first & total it. Then, draw up a list of expenditure & total it. Take the total expenditure away from the total income. State whether the total is a surplus (more income than expenditure) or deficit (more expenditure than income). Example:
Importing 1. Visible imports: The purchase of physical products from other countries e.g. car, oil, fruit, coal. 2. Invisible imports: The purchase of a service from a foreign country e.g. oversea holidays, foreign singers performing Ireland. Why does Ireland import goods & services? Unsuitable climate to grow certain products e.g. oranges, bananas, tea. Does not have raw materials required for production e.g. oil, coal, steel. Certain countries have natural skills e.g. French wines. Irish consumers want variety. Exporting 1. Visible exports: The sale of physical goods by Ireland to other countries e.g. dairy products, beef and chocolates. 2. Invisible exports: The sale of services by Ireland to other countries e.g. tourists visiting Ireland, Irish bands playing concerts overseas, providing financial services to other countries. Why does Ireland export goods & services? To earn essential foreign money to pay for imports. If there is demand for Irish products abroad e.g. Kerrygold butter! Maintains jobs in Ireland. Ireland s ability to export encourages foreign businesses to establish in Ireland. What difficulties would Irish firms experience when exporting goods? Different languages. Different currencies. Transport & insurance costs. Regulations to be adhered to e.g. dress code. What is the European Union (EU)? An organisation established with the aim of eliminating trade barriers between member states. 28 members (including UK) Free trade between members. Free movement of people between members. Provides a common currency. Benefits of EU membership to Ireland: Access to a European market of 500 million people. EU finance for farmers, industry & infrastructure. Increased consumer choice - goods imported from EU. Irish people can work in any EU member state.
Currencies Currency Euro Pound Sterling Sweden Denmark Territory France, Germany, Italy, Belgium, Netherlands, Luxembourg, Greece, Spain, Austria, Portugal, Finland, Cyprus, Estonia, Malta, Slovakia, Slovenia. UK Krona Krone Rate of exchange Euro > foreign currency MULTIPLY Foreign currency > euro DIVIDE Example: John is going to a Beyoncé concert in America & wishes to convert 200 into US Dollars. The sell at rate is 2.60 & the buy at rate is 2.74. How many dollars will he get? Use the sell at rate > 200 x 2.60 = $520 Use the buy at rate (2.74) for his return home (converting dollars back to euros). Balance of Trade Formula: Visible Exports Visible Imports Visible exports > Visible Imports = a trade surplus Visible exports < Visible Imports = a trade deficit. Balance of Payments Difference between all exports & imports of a country. Formula: Total Exports Total Imports Total exports > Total Imports = surplus Total exports < Total Imports = deficit