Introduction to the Subject of Economics

Hello learner! Welcome to Section 1 of Year 2 Economics. Economics may seem complex, but it becomes easier to understand when using the right tools. One important tool is economese, the specialised language of Economics. Terms like “inflation,” “opportunity cost,” and “demand” may seem technical, but they help economists to communicate complicated ideas between each other without getting too confused with the many different words that could otherwise be used to describe these concepts.

To make these concepts even clearer you can also use infographics. Infographics transform data into visual stories, showing trends, comparisons, or relationships at a glance. Economists also use equations from algebra to calculate important economic variables such as utility, revenue, and cost. For businesses, calculating revenue helps them understand how much they earn while understanding cost shows how much expenditure they have made during production. In this section, you will learn how to combine economese, infographics, and algebra to enable you to interpret and analyse economic data.

KEY IDEAS

• Algebra involves the use of variables and expressions to represent economic ideas and relationships. It is a branch of mathematics that focuses on solving equations which are used to understand the relationships between different economic variables.

• Economists use a specialised language called “economese” that is specific to economic theories, models, and practices. It includes terms like “inflation,” “opportunity cost,” “gross domestic product (GDP),”.

• Infographics are visual representations of information, data, or knowledge intended to present complex information quickly and clearly.

• The combined impact of economese, infographics, and algebra helps the economist to interpret and analyse economic data accurately.

In a bakery, there are ingredients and equipment such as flour, oven, margarine, the building, all used to produce bread. These physical things which help the baker to produce the bread are called capital in Economics. In other fields, capital can mean the largest city of a county or the money for business. These show that every field can use the same word but with a different meaning.

In Economics, these special words explain economic problems to help in the understanding of common economic issues. These words are tools that help you understand, explain, and analyse what is happening in the economy around you and help you make better decisions about the future. They make economic analysis simple by breaking down difficult ideas and issues into easy-to-understand terms.

Some of the words come in their abbreviated forms. For instance, Gross Domestic Product (GDP), Value Added Tax (VAT), Production Possibility Frontier (PPF), United States dollars ($ or USD), and Quantity (Q). These can be difficult to understand for people who are not familiar with them.

People in Ghana often complain about economic issues. The inflation rate is rising, causing the prices of common goods to soar. The depreciation of the cedi makes the situation worse as people cannot afford to shop. The low value of the cedi makes imports more expensive for businesses. Wage stagnation is leading to dissatisfaction among workers, prompting strikes. The high unemployment rate is leaving many young people without job opportunities. These problems use ‘economese’ to help Ghanaians complain!

Examples of Economese Used in Economic Analysis

₁. Factors of production: These are the resources we use to make goods and services. Imagine you want to make something like a pizza or even start a business. To do this, you need land/space, machines and ingredients, the human effort to produce and a brain behind the business. In Economics, we call them “factors of production.”

2. Gross Domestic Product (GDP): This is the total monetary value of all finished goods and services produced within a country’s borders in a specific time period, usually annually or quarterly.

3. Inflation: It is the rate at which the general level of prices for goods and services is rising resulting in a decrease in the purchasing power of a currency over time.

4. Imports and Exports: Imports are goods and services that a country buys from other countries, while exports are goods and services that a country sells to other countries. Ghana, for example, exports cocoa but imports cars.

5. Budget: A budget is a plan that shows how much money is expected to come in (income) and how much will be spent (expenses) over a period. The government of Ghana makes a national budget each year to decide how to spend its money on things like education, healthcare and roads.

6. Tax: A tax is usually money that individuals and businesses must pay to the government. Taxes are used to provide public services like schools, hospitals and roads.

Activity 1.1 Word Hunt

1. Search and list three more economese words that are associated with each of the following economic concepts: Demand, Supply, Market, and Utility. Did you notice that these are also economese?

2. Write a short definition for each economese word you have identified.

3. Share your findings with your friends in class.

Note: Respect your friends and tolerate their views.

Activity 1.2 Matching Game

Copy and complete the table by matching the correct economese word with the correct definition: Price, Supply, Inflation, Diminishing Marginal Utility, Scarcity, Demand Curve.

Economic word Definition A graphical representation showing the relationship between price and quantity demanded.

The amount of money that is required to purchase a good or service.

A situation where limited resources are not enough to satisfy unlimited wants.

The amount of a product that producers are willing to sell at different prices.

The principle is that as a person consumes more units of a good, the ad- ditional satisfaction from each new unit decreases.

The rate at which the general level of prices for goods and services is rising.

Show your work to your teacher and also share it with your friends.

Activity 1.3 Real-Life Application of Demand and Supply

Create a short-written presentation (alternatively, MS PowerPoint can be used) on the following issues:

1. How the demand for smartphones increases as more students desire to study online.

2. How the supply of maize is affected by weather conditions.

3. Discuss your findings with your friends in class. Remember to be polite, respectful, and tolerant.

In addition to words, economists use infographics to simplify economic data and make it more understandable. For instance, a graph showing the trend of food prices in Accra over the last two years can help you see how inflation impacts our daily expenses.

These visuals make it easier for us to interpret economic data. See a typical example in Figures 1.1-1.5.

Figure 1.1: Infographic on Ghana’s GDP in 2013

Figure 1.2: Infographic on Revenue Mobilisation trends

Figure 1.3: Market Demand Schedule

Figure 1.4: Infographic on Expenditure

Figure 1.5: Infographic of Demand and Supply

Infographics visualises data using charts, graphs, tables/schedules and maps to show information like economic trends, comparisons and distributions. Visualisation helps make it easier to understand the main points of the data quickly. They also simplify complex economic ideas, models and connections into easy-to-understand visuals, making them more accessible to everyone.

Activity 1.4 Creating an Infographic for one Person’s Demand Schedule

1. The table below is the demand schedule of Blessing for her purchase of balls of Kenkey during the month.

Price (Gh¢) Quantity Demanded (balls of Kenkey)

2 20 3 18 4 15 5 12 6 8 7 4 8 1

2. Analyse Blessing’s demand schedule by drawing a line or bar graph.

3. In Economics, price is conventionally plotted on the vertical axis (Y-axis) of a graph. The quantity of goods or services is typically plotted on the horizontal axis (X-axis).

4. Politely share your findings with your friends or relatives.

Activity 1.5 Creating and Infographic for a Market Demand Schedule

1. Add the demands of Ofori, Fati and Esinam together to get the market demand in the table below.

2. Draw the demand curve for Ofori and Esinam on the same line graph (alternatively, you can use MS Excel). Remember price on the Y-axis, Quantity on the X-axis.

3. Draw the market demand curve on a different line graph.

Price (Gh¢) Quantity Demanded (Tubers)

Ofori (O) Fati (F) Esinam

(E) Market Demand

(O + F + E) 10 10 12 8 12 7 10 7 15 5 7 5 18 3 5 3 22 2 3 2 25 1 2 1

4. Explain how infographics helps to understand the individual and market demand curves.

5. Present your findings to your friends in class.

Algebra in mathematics uses letters and numbers in equations to represent and solve problems. Algebra plays an important role in analysing economic issues and solving problems. For example, knowing how to calculate Revenue and Cost helps businesses to decide how much to produce or sell. Revenue is the money made by selling a quantity of goods and is calculated by multiplying the price of a good by the quantity sold.

This can be written as an equation: Revenue = Price × Quantity R = PQ Cost is the amount spent on producing goods. This can be written as an equation:

Total Cost of Production = Fixed Costs + Variable Costs TC = FC + VC Using these equations helps business owners and economists to calculate profit margins and estimate business growth.

Some Examples of Algebra in Economics

Demand Function

The demand function shows how the quantity of a commodity that people want to buy (demand) changes as the price of the product also changes. Thus Qd = f (P) Qd: This stands for “quantity demanded,” or how much of a product people want to buy.

P: This is the “price” of the product. The price indicates how much consumers must pay for each unit of the product. The f (function) expresses the relationship between Quantity demanded and Price.

The demand function can also be written as an equation: Qd = a − bP Where:

Qd: Quantity demanded P: The price of the product.

a: This is the constant of demand. It is called the “intercept” of demand. It shows how much people would demand if the price of the commodity were zero or if certain factors like income or preferences do not affect demand. It is like the starting point of demand.

b: This is the “slope.” It tells us the rate of change of quantity demanded in relation to the price change. Usually, as the price goes up, demand goes down (and vice versa).

In this example, as b is -20, it means for every Gh¢1 increase in the price, demand will decrease by 20 units. The slope in this case is very steep.

For example, let us say the demand equation for local rice at the school canteen is:

Qd = 500 − 20P. Can you tell what the variables in the demand function mean?

a = 500: This means if the price were zero, students would demand 500 units of rice.

b = -20: This means that for every Gh¢1 increase in price, the demand decreases by 20 units. This could also mean that if the price increases by Gh¢1, 20 units of the rice will not be purchased.

If the price of rice is Gh¢10, we can calculate the demand like this:

Qd = 500 – 20 (10) --- Substituting the value of P with Gh¢10 Qd = 500 – (20×10) --- Expanding the bracket Qd = 500 – 200 --- Simplifying Qd = 300 units of rice --- Final answer So, when the price is Gh¢10, people or students would want to buy 300 cups of rice.

Other Algebraic Expressions of Economic Concepts

Supply Function

Qs = a + bP Where:

Qs: Quantity supplied (how much sellers are willing to sell).

a: This is the Constant/Intercept of supply. It is the starting point of supply when the price is zero.

b: How supply changes with price (usually, as price goes up, supply goes up too).

P: The price of the product.

Production Function

Q = f (L, K) Q: Total output (how much is produced).

L: Labour (workers).

K: Capital (machines, money, tools).

Utility Function

U = f (x₁, x₂) U: Utility (how much satisfaction a consumer gets from goods).

x₁ and x₂: utility of different goods or products a consumer buys.

These equations will be further explained in our subsequent lessons. Learner, read about the production function and the utility function before your teacher comes to teach them in class.

Note

Several other Economic concepts can be represented with algebraic expressions.

Go ahead and explore more from the internet and other relevant Economics textbooks!

Activity 1.6 Calculating Quantity supplied

1. If the price of one (1) orange at your school’s canteen is Gh¢1.50p and given the equation for supply function of oranges is Qs = 300 + 20P, calculate the supply of oranges (Qs).

2. Follow these steps as a guide to arrive at your answer:

Step 1: Quote the supply function given in the question.

Step 2: Substitute the value of Price for ‘P’ in the equation.

Step 3: Solve the equation to arrive at the final answer.

3. Remember to add ‘units’ (in this case, oranges) to your answer.

4. Show your work to your friends in class and explain to them how you arrived at the correct answer. Be polite to your friends and show respect as you explain.

Activity 1.7 Utility Calculation Activity

1. Consider Moses consuming two different commodities, kenkey (x) and fish (y). The combination of the two commodities will give him certain level of utility (satisfaction).

2. Determine the utility for Moses if his utility functions are:

a. U = x + 2y when x = 3 and y = 4

b. U = 3x + 3y when x = 5 and y = 3

c. U = 4x²+ 3y³when x = 3 and y = 2

3. Remember to add ‘utils’ as the unit of measurement for utility.

4. Compare and comment on the three different satisfactions derived by Moses.

5. Indicate which of the three levels of satisfaction is most preferable for Moses and why.

6. Share your findings with your friends in class.

Activity 1.8 Problem-Based Learning Activity

1. Your teacher will put you into small groups for this activity and assign roles (e.g., researcher, presenter, calculator)

2. Investigate an economic issue related to the demand or supply of a commodity in your community (for example, how price changes affect the quantity demanded of a commodity).

3. Identify relevant algebraic equations or functions for the issue.

4. Create an equation to represent changes in demand or supply based on price variations/changes.

5. Present your findings to other groups in the class

Note

Use local examples or scenarios (for example, changes in market prices for tubers of yam). Respect the background of your friends.