Economics

is the study of how we make the best possible use of scarce

resources in order to satisfy the needs and wants of as many

people as possible.

Economics

You can’t have it all!

Factors of production

Land Labour

Capital Enterprise

Land

• Anything provided by nature that helps us produce G&S

• E.G. Sea

Soil

Gas

• Payment: Rent

Labour

• Any human effort that helps to produce G&S

• E.G. Doctor

Accountant

Factory worker

• Payment: Wages

Capital

• Anything that is made by humans that is used to help produce G&S

• E.G. Machinery

Computers

• Payment: Interest

Enterprise

• Organises land labour and capital by setting up a business and bears the risk of success or failure

• E.G.

• Payment: Profits

Entrepreneur

Economic Systems

Mixed Economy

Most of the decisions regarding the factors of production are made by the private sector

Some industries controlled by the government (Essential services)

Free Enterprise

Economic choices about factors of production made by private sector - Government has little intervention

- Capitalism

Centrally Planned

- Government controlled economy - Gov decides what is produced and by whom

-Little intervention by private sector

Consumer Choices!

Opportunity Cost

The item that you do without when you have to make a choice between two items. The items you choose is the financial cost

Example

The government has €100 M to spend on building a new or a new

As advisor what do you advise?

Economic Growth

Is the increase in the production of goods &

services from one year to the next

GDP

Gross Domestic Product

The total value of all G & S produced in a country in one year

Gross Domestic Product

FORMULAIncrease in production x 100 Year 1 production 1

Example 1Production Year 1 - €15,000Production Year 2 - €17,000Difference = €2,000

€2,000 x 100€15,000 1= 13.3%

Example 2

Calculate the GDP

Production Year 1 - €50 billionProduction Year 2 - €52 billion

Example 3

Calculate the GDP

Production Year 1 - €64 billionProduction Year 2 - €68 billion

GNP

Gross National Product

GDP minus profits sent out of country by foreign owned companies plus profits returned to Ireland by Irish firms abroad

High Economic GrowthBenefits:

1.Improved standard of living: Access to increased quantity & quality of goods

2. Creates Employment: Demand for G&S increases

3.Increases revenue for Gov: Increase in taxes

Low economic growth:

Disadvantages

1. Wages decrease

2. Unemployment increases

3. Decrease in tax revenue

4. Lack of investment in essential services

Inflation

An increase in prices of goods and services from one period to the next.

- Inflation is measured by the (CPI) Consumer Price Index.

FormulaIncrease in price x 100 Year 1 price 1

Inflation

Example 1

Calculate the rate of inflation.

Year 1 Cost of Living = €20000

Year 2 Cost of Living = €21500

Solution

(21500 - 20000) x 100 = 7.5%

20000

Example 2

A family’s weekly grocery bill costs €111 in July 2010. If the inflation rate for the year was 11%, what would the bill cost in July 2011?

SolutionPrice in 2010 € 111

€111 x 11% = + € 12.21Price in 2011 = € 123.21

Causes of Inflation

1.An increase in the cost of production e.g. rent, wages

2. If demand for G &S › supply

3. An increase in taxation e.g. VAT

4.The cost of importing goods may increase e.g. oil

Effects of low Inflation

1. Cost of Living is cheaper

2.Businesses keep costs to minimum

3.Increase in demand for exports

4.Lower interest rates

Reasons for Government intervention

1. Meet minimum needs of Irish people

2. Provide basic services

3. Provide income for people who cant work

4. Regulate running of businesses

The National Budget

Is a financial plan outlining the

Income & Expenditure of the Government

http://businessetc.thejournal.ie/september-exchequer-returns-619584-Oct2012/http://businessetc.thejournal.ie/september-exchequer-returns-619584-Oct2012/

Government

Income & Expenditure

Capital Income Capital Expenditure

Current ExpenditureCurrent Income

Capital Income Capital Expenditure

Privatisation: Selling of state assets to the

private sector

EU Grants

Borrowing

Building new school

Building new roads

Building new hospitals

Current Income

Income Tax

VAT

Stamp Duty

DIRT

Corporation Tax Customs Duty

Excise duty

Capital Gains Tax

Capital Acquisition Tax

http://www.thejournal.ie/ireland-saves-facebook-taxes-630895-Oct2012/

Income Tax PAYE. Tax deducted from workers gross wage

VAT Tax paid on G & S. Two rates: 13.5% & 23%

Stamp Duty Tax paid on the purchase of property. Rate: 1%

Corporation Tax Tax paid on the profits made by companies

Customs Duty/ import duty Tax paid on goods brought in from outside the EU

DIRT Tax paid on interest earned in deposit account

Excise duty Tax paid on alcohol tobacco and oil

Capital Gains TaxTax on profits made from the sale of an asset e.g. buildings

Capital Acquisition Tax Tax on inheritance or gifts

Current Expenditure

Social welfare benefits

Teachers pay

Garda pay Judges pay

Nurses pay

Doctors payDebt servicing

Place expenditures under correct headings

Department Current Expenditure Capital Expenditure

Department of Health and Children

School buildings and Equipment

NCT Testing

Department of Education and Science

Building Prisons, Court Buildings

Teachers’ pay, school running costs

Department of Justice, Equality and Law

Building waste treatment facilities

Building hospitals, Clinics, Hospital Equipment

Department of Environment

Garda Pay, Judges pay

Medical cards, Nurses and Doctors pay

Solution

Department Current Expenditure Capital Expenditure

Department of Health and Children

Medical cards, Nurses and Doctors pay

Building hospitals, Clinics, Hospital Equipment

Department of Education and Science

Teachers’ pay, school running costs

School buildings and Equipment

Department of Justice, Equality and Law

Garda Pay, Judges pay

Building Prisons, Court Buildings

Department of Environment

NCT Testing Building waste treatment facilities

Activity 1. Collect a newspaper article relating to Ireland economy 2. Cut it out and place it in notebook. 3. Underline key words.

4. Write summary of article. 5. Provide opinion/ recommendation 6. Present to the class

Types of Current Budgets

1.A balanced Budget: Income = Expenditure

2. A surplus Budget: Income › Expenditure

3. A deficit Budget: Income ‹ Expenditure

Which of the three is our current budget?

Budget 2012:

Income: €39.2 billionExpenditure: €64.4 billionDeficit: €25.2 billion

Why?

€

Agriculture Service 137

Corporation Tax 77

Customs Duty 24

Debt Servicing * 237

Defence Service 86

DIRT* 139

Education & Science Service

330

Excise Duty 148

Health & Social Welfare Service

509

PAYE 619

VAT 170

Question

Revenue € €

Corporation tax 77

Customs duty 24

DIRT 139

Excise duty 148

PAYE 619

VAT 170

Total income 1177

Expenditure

Agriculture services

137

Debt servicing 237

Defence services 86

Ed & Science 330

Health & social service

509

Total expenditure 1299

Budget deficit (122)

Solution

Revenue

Customs Duty 500

VAT 800

PAYE 900

DIRT 50

Capital Gains Tax 100

Corp Tax 750

Total Income 3100

Expenditure

Social Welfare Services 1000

Health Services 900

Ed and Science Services

800

Agric Services 500

Debt Servicing 30

Defence Services 250

Total Expenditure 3480

Deficit Budget (380)

Text book Pg. 143 Q.20

Revenue

Income Tax 7000

Customs & Excise 2000

DIRT 600

VAT 6500

Corp Tax 4500

Capital Gains Tax 550

Total Income 21150

Expenditure

Social Welfare Services

5000

Health Services 4500

Ed & Science 4000

Debt Servicing 90

Agric Services 2500

Equality & Law 2000

Local Gov Services 2400 20490

Surplus 660

Text book Pg. 143 Q.21

Revenue & Expenditure €

Social Welfare Payments 800M

Debt Servicing 222M

Customs & Excise Duty 600M

Corporation Tax 500M

Education & Science Services

300M

Department of Justice 500M

VAT 600M

Income Tax 700M

Q.1 Was this a Surplus or Deficit Budget. Explain.

Q.2 What was the main source of Gov Income?

Q.3 What % of total expenditure was spent on Education

Q.4 Explain two effects of decreasing level of unemployment on the National Budget.

Sample Question