Linda Low - Economics Primer

Linda Low

Singapore University of Social Sciences, Singapore

Published by

World Scientific Publishing Co. Pte. Ltd.

5 Toh Tuck Link, Singapore 596224

USA office: 27 Warren Street, Suite 401-402, Hackensack, NJ 07601

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National Library Board, Singapore Cataloguing in Publication Data

Name: Low, Linda.

Title: Economics primer / Linda Low.

Description: Singapore : World Scientific, [2020]

Identifier(s): OCN 1140677714 | ISBN 978-981-12-1843-9 (paperback) | ISBN 978-981-12-1792-0 (hardcover)

Subject: LCSH: Economics.

Classification: DDC 330--dc23

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library.

Copyright 2020 by World Scientific Publishing Co. Pte. Ltd.

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This Primer is for Maddy

Linda Low, Associate Professor, Singapore University of Social Sciences, started in the Ministry of Finance, Singapore doing tax research before joining the National University of Singapore, then became a Senior Research Fellow at the Institute of Southeast Asian Studies (now Yusof Ishak Institute, Singapore). For eight years, she was the Head of Strategic Planning in Abu Dhabi Government (United Arab Emirates, UAE) and Senior Economic Adviser for Abu Dhabi Council for Economic Development as well as Adjunct Professor at UAE University and UAE Higher Colleges for Technology. Her research includes public sector economics and public policy, public enterprises and privatisation, social security and retirement, ageing, health economics, human resources development and manpower policies, international trade and regionalism, international political economy and development economics, with publications in Asia-Pacific, Association of Southeast Asian Nations (ASEAN) and Gulf Cooperation Council (GCC). She works with the Asia-Pacific Economic Cooperation (APEC) and Asia-Pacific Economic Cooperation Council (PECC). She also collaborates with National Trades Union Congress (NTUC) and Singapore Civil Service College for skills training.

Quoting a poem by Rudyard Kipling, this Primer has the same aims as his six honest serving men:

I keep six honest serving-men

(They taught me all I knew);

Their names are What and Why and When

And How and Where and Who.

This Primer is preparatory Economics, simplified for students and laymen in daily life, as a stepping stone to understand more complex economic events around the world today. This chapter reviews some basic economic concepts as a start.

In an integrated globalised world economy, there is nowhere to hide in economies open to trade, investment and people crossing borders. shows the circular flow among the main economic actors as households and firms. They represent demand and supply respectively with government in taxation and expenditure. Adding trade makes an open economy with foreign households, firms and governments in action.

Figure 1.1Circular flow

The factors comprise land, labour and capital, used by firms to produce goods and services, demanded by households also as suppliers of labour. Economics is about human behaviour making rational decisions in consumption, saving, production and investment, all grounded on benefits and costs or net benefits.

In circular flow models, the basic actors in any economy are the consumers in households on the demand side and producers in businesses or firms on the supply side to reflect the see-saw in shows businesses produce and supply goods and services to the households. Households in turn provide factors of production in land, labour and capital.

Starting as a closed economy, shows a see-saw definition of unlimited human wants (heavy end) in contrast to limited resources (lighter end) with the balancing by the private and/or public (government) sectors.

goods and services or outputs as unlimited human wants. Human satisfaction is beyond basic needs in food, clothing and shelter to become luxury goods.

Figure 1.2See-saw definition of economics

Understanding that economic growth is quantitative as gross domestic product (GDP) and economic development is quality of life. More consumption of goods and services is desired to attain social welfare which is based on some distribution systems by the government. Individuals and households make rational choices for private goods. The governments collective role in defence and police is rational. It is rational in providing public education and public health for society as a whole based on externalities of public goods. Singapore excels as its competitive advantage lies in its human resource development.

The circular flow concept in shows what goes around, comes around. The inner set of arrows show a barter exchange of goods and services. In a monetised economy, money is a medium of exchange. The outer set of arrows show consumer spending paid to businesses which in turn pay households factor incomes in wages and earnings.

To illustrate the basic circular flow, banks, equity and capital market or labour market. Circular flows are self-equilibrating without any intervention or intermediation.

Figure 1.3The basic circular flow model

shows a more realistic circular flow of income and spending in an open economy. It incorporates other economic agents, mainly, government, rest of the world or world economy with exports and imports, and financial markets as intermediaries for saving and investment. In an open economy, foreign households and businesses are at work in all transactions.

Distinguishing the flows further into leakages and injections:

Injections are flows which increase circular flows and economic activity as a whole. They comprise investment (I) to increase production capacity, export (X) to earn foreign exchange from the rest of the world and government spending (G) of state provided goods and services.