Economy and Economic Relations
Core concepts
Economics studies the production, distribution, exchange, and consumption of goods under scarcity. Know the factors of production: land (rent), labour (wages), capital (interest), entrepreneurship (profit), and information. Understand the types of economic systems: traditional, command (planned), market, mixed. Know demand and supply, equilibrium price, competition, and the role of the state (regulation, public goods, redistribution, stabilisation).
Master the distinctions: micro (firm, household, price) versus macro (GDP, inflation, unemployment, growth); nominal versus real income; extensive versus intensive growth. Know the forms of ownership and the concept of the firm's costs (fixed, variable, total).
Traps
A frequent error is confusing the factor with its income: candidates pair labour with profit or capital with wages. Another trap is treating GDP as a measure of well-being - it measures output, not welfare. Watch for questions on inflation: it hurts creditors and savers, helps debtors; it is not the same as a price rise for one good. Also distinguish a shift along the demand curve (price change) from a shift of the curve (income, tastes, expectations).
Worked example
A question states that incomes rose 10% while prices rose 15%. What happened to real income? Rule of thumb: real change ≈ nominal change minus inflation, so real income fell by about 5%. If nominal and price rises are equal, real income is unchanged.
Rule of thumb
Factor → income: land→rent, labour→wages, capital→interest, entrepreneurship→profit. Memorise this chain; many items are solved by it alone.