chp 1 intro economics

8/14/2019 Chp 1 Intro Economics

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Economics

Prepared by: Waqas Mazhar


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LOGOEconomic Problem:

Human Needsand wants

Resources


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Unlimited Needs


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LOGOWhat is Economics?

Scarcity

Choice

Scarcity is theproblem of infinitehuman needs andwants, in a world of

finite resources


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Economics is the study ofhow societies choose to usescarce productive resourcesthat have alternative uses, to

produce commodities ofvarious kinds, and to distributethem among different groups.

Economics is a behavioral, orsocial, science

DEFINITIONDEFINITION


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LOGOAdam Smith

Economics is the social

science that studies

Production of wealth

Distribution of wealth Exchange of wealth

Consumption of wealth


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LOGOFactors of Production

Land Labor

Capital Enterprise


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LOGOLand

Farmland Open Space

Water Minerals


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LOGOLabor

Time Muscle Power

Brainpower


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LOGOCapital

Buildings Machinery

Equipment Roads Bridges


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LOGOWHY STUDY ECONOMICS?WHY STUDY ECONOMICS?

There are four main reasons to study economics:

to learn a way of thinking,

to understand society, to understand global affairs, and to be an informed voter.


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Scarcity id defined as: Insufficiency ofamount or supply

Scarcity is basic problem which assumes

that human wants will always exceed theresources available to fulfill those wants.

Efficiency is defined as ability toaccomplish a job with a minimum

expenditure of time and effort:

SCARCITY & EFFICIENCYSCARCITY & EFFICIENCY


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LOGOMicroeconomics

Microeconomics is a branch ofeconomics that studies how

individuals, households and firms andsome states make decisions to

allocate limited resources

Microeconomics is the study of thedecisions of people and businesses and theinteraction of those decisions in markets.


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LOGOMacroeconomics

Macroeconomics is concerned withoverall performance of an economy.

Macroeconomics is the study of thenational economy and the global economyand the way that economic aggregatesgrow and fluctuate.


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What Do Economist go about their

tasks?

Scientific Approach

Observations, study, and experiments Using tools of Statistics

Draw simple relation between twovariable Then policy making


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LOGOPolicy

A policy is typically described as a planor course of action.

The term may apply to government,private sector organizations and groups,

and individuals.


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LOGOTheory

In science, the word theoryis used as ageneral principle or body of principlesoffered to explain a phenomenon.

One or more Statements

Or General principle With logical framework Describing any fact or phenomenon

Helps in decision


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LOGOCautions and pitfalls

Post Hoc Fallacy:

Looking at two events that happen in

sequence and assuming that first

caused second to happen

Event A Event B

Price rises Consumption of Goods and

services decreases

Producing more goods and

services

Increase in Income

Improvement in training of

workers

Increase in more output


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LOGOCautions and pitfalls

Fallacy of Composition:What is true for part is true for the whole.

When you increase your production you will earn more

Firm increase the productionform 2000 to 3000 units of

products

The profit of companyincrease from 100,000 to

150,000 rupees.

When all producers in the market is following it then there will be large

amount of supply


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Three Questions in Economics

What goods and services to produce? Pizza or Shirts, Guns or Food

How to produce? Labor Intensive

Capital Intensive For whom to produce?

Depends on the distribution of Wealth in Society


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LOGOApproaches to Economics

To address three questions

Positive Economics_an approachto economics that describes what

exist, how it works.Normative Economics_an

approach to economics that analyzes

outcomes of economics behavior,

evaluate them as good or bad andmay prescribe course of action


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Market, Command and Mixed

Economies

To answer three questions of

Economics Societies decides to

adapt the economic system.

Command Economy Market Economy Mixed Economy


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Market, Command and Mixed

Economies

Government

Individuals

Who will take decision of what, how and to whom to

produce goods and services.

Decisions

Price

Quantity

Wage

Rent

etc


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LOGOMarket Economy

In which individuals and private

firms make major decisions

about production and

consumptions


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LOGOCommand Economy

In which Government make all important

decisions about production and

distribution

Government own means of production Employees the workers How output will be distributed in

society

Price fixing

Minimum wage

How much toproduce


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Mixed Economy

With elements of Market and Command

Governmen

t

IndividualsMixed


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LOGOInputs and Outputs

Inputs:

Commodities or services that are used to

produce goods and services.

Output:Various useful goods and services that

result from production and are either

consumed or employed for further

production.

ManufacturingInputs Outputs


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LOGOInputs and Outputs

ManufacturingInputs Outputs

Land

Labor

Capital

Goods

services

Converting inputs

into outputs

Production process


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LOGOProduction Possibility Frontier

Societies can not have everything they want

Where to allocate resources

Production possibility frontier (PPF): A

graph that shows all the combinations ofgoods and services that can be produced

if all of societys resources are used

efficiently.

A production possibility curveA production possibility curve


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Units of clothing (millions)

Unitso

ffood(million

s)

Units of food Units of clothing

(millions) (millions)

8m 0.0

7m 2.2m

6m 4.0m

5m 5.0m

4m 5.6m

3m 6.0m2m 6.4m

1m 6.7m

0 7.0m




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a 8m 0.0

7m 2.2m

6m 4.0m

5m 5.0m

4m 5.6m

3m 6.0m2m 6.4m

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a




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b 7m 2.2m

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1m 6.7m

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b




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0 7.0m




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w


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Production Possibility Frontier

(continue)

Unemployment Of Resources:resources not in use/production.

Opportunity Cost: Sacrifices/foregoneoutput

Economic Growth An increase in thetotal output of an economy. It occurswhen a society acquires new resources or

when it learns to produce more using

existing resources.


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LOGOOpportunity Cost

Definition the cost expressed in terms ofthe next best alternative sacrificed

Helps us view the true cost of decision making

Implies valuing different choices

What is your opportunity cost of being heretoday??

Costs are typically expressed in terms ofmoney or time.


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LOGOOpportunity Cost

Education takes time. Timespent in the classroomhas an opportunity cost.

Economic Growth Shifts the PPF Outward


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Economic Growth Shifts the PPFOutward

Investment for Future Consumption Requires Sacrificing Current


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Investment for Future Consumption Requires Sacrificing Current

Consumption


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Six Possible Pairs of Food-Machine Production Levels


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Six Possible Pairs of Food Machine Production Levels


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A Production-Possibility Frontier

Shift of Curves versus


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Movement along Curves


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chp 1 intro economics

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