Eco415 Chap 1
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Hana The Pencil KnightEco415 Chap 1
Uploaded by
Hana The Pencil KnightChapter 1:
Introduction to
economics
1.DEFINITION OF ECONOMICS
2.SCOPE OF MACRO & MICRO
3.BASIC ECONOMICS CONCEPTS
4.BASIC ECONOMIC PROBLEMS
DEFINITION OF ECONOMICS
• Study of how society chooses to allocate its scarce resources to the production of g &
s in order to satisfy unlimited wants – Irvin B. Tucker
• As the Science which studies human behaviour as a relationship between ends &
scarce means which have alternative uses – L. Robbins
• Economics is the social-science study dealing with the use of scarce resources to obtain the
maximum satisfaction of society’s virtually unlimited material wants- McConnell & Brue
• Study of man in everyday business life – Alfred Marshal
*Social - science study as it deals with human behaviour in making the decision on how
people use scarce resources in fulfilling their unlimited wants – Economist
• Study of man in everyday business life – Alfred Marshal
key: 2 problems in the economy
1. Productive resources to produce Good & Services are limited
2. Human wants for Good & Services are unlimited
SCOPE OF MACRO & MICRO
The discipline of economics is divided into two main branches namely
microeconomics and macroeconomics
microeconomics macroeconomics
Is the study of economy as a
whole or aggregate. It focuses
Is the study of individual on national income, general
units in the economy. It employment, general price level
focuses on the price etc.
theory , production theory
and distribution theory.
Example: pricing decisions of Example :
firms within or among industries, inflation,unemployment,econo
purchasing decisions of mic slowdown or growth and
consumers of a particular good, etc
government intervention in the
pricing a goods and services and
etc
BASIC ECONOMIC CONCEPTS
i.Scarcity - occurs when a society’s wants exceed the ability of the economy to meet those wants.
Human’s wants are virtually unlimited but at any one time the world can only produce a limited amount of
goods and services. This is because the world has only a limited amount of resources.
Resources in the definition of economics refers to factors of production or inputs
Factors Explanations
of CAPITAL Capital is equipment, factories, machines
productio and tools that man creates to help them
n produce goods and services. The
LAND Lands include all resources found in the sea productivity of capital is limited by the
and on the land. state of technology.
In economics ,land include:
• Raw materials such as copper, timber and ENTREPRENEU Entrepreneurship is the human ability and
rubber. RSHIP talent to develop products and processes and
• Landscape such as mountains, valleys and to organize factors of production to make
hills goods and services available. They undertake
• Ports such as natural harbour. necessary to get the process of production
• Climatic conditions such as rain and snow. started and make the decisions relating to the
• Geographical location such as continents use of inputs.
and islands. One who looks for opportunities, highly
LABOR Labor represents the services of human motivated, innovative, risk averse
beings in the production of goods and
services. Both physical and mental efforts are
included in this category.
ii. CHOICE- Individual, business and society must make decision to choose.
We must choose among many alternative. A choice must be made due to the
scarcity of resource that we faced.
Example : as an individual we must choose between job and college
education, between saving and consumption, or between going to a movie
and studying. Government must choose between more spending on defense or
more spending for public education
iii. Opportunity Cost (OC)- Making a choice is not easy task. Each time you
choose to use resources for a purpose, it means you must forgo some other
purpose. Making a choice involves a sacrifice. In economics that is what
we mean by the term “opportunity cost”. Opportunity cost is the best
alternative(good or service) sacrificed for a chosen alternative which gives
more satisfaction
Examples: suppose you have to choose between buying a new car and
going for a vacation. If you decided to buy a new car, the opportunity cost
of buying a new car is the lost of going for a vacation. If you decide to go
for a vacation, the opportunity cost is the lost of buying a new car.
4 Basic Economics Questions/problems
i. WHAT to produce?
• Knowing that resources are limited
a producer has to decide what to
produce.
✔ Do you want to produce military goods or consumer goods?
✔ Should we produce small cars or large cars ?
✔ Produce more public transportations (buses, commuters, LRT,
monorail) or private vehicles?
ii. HOW to produce?
• How to mix technology and resources
to produce goods and services.
✔What is the most cheapest or economical
way to produce?
✔One has to decide whether to use capital
(machine) or labor (human) intensive.
✔ The most important thing is to minimize
the cost of production
iii. HOW many/when to produced?
• depends on the demand from consumers and also the
availability of resources.
iii. For WHOM to produce?
• It refers to how goods and services are distributed
among society.
• Who is the market? Who is going to get the goods
produced? Should everyone get an equal share? Is it
for the high-income earners or for the low/ idle income
earners.
THANK YOU ☺
