Topic 1: Basic Economics Concept

Needs

the basic necessities that a person must have in order to survive

eg. food, water, warmth, shelter and clothing

wants

the desire that people have

eg. things that people would like to have, such as bigger homes, iphones

Study of economics

• How to meet unlimited needs with scarce resources

• Economists study how to meet people’s unlimited wants with scarce, available resources

Scarcity

• The excess of wants resulting from having limited resources (land, labor, capital and entrepreneurs) in satisfying the endless wants of people.

• It is a universal problem for societies – it is not limited to poor countries.

• To the economist, all goods and services that have a price are relatively _____.  This means that they are ____ relative to people’s demand for them.

Economics

• _____ is classified as social science because it deals with the study of human’s life and how he lives with other men

• a social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services

  

Applied Economics

is the study of economics in relation to real world situations. It is the application of economic principles and theories, ridiculous situations, and trying to predict what the outcome might be

the study of observing how theories work in practice

• Microeconomics

• Macroeconomics

• Branches of Economics

Microeconomics

• focuses on how decisions are made by individuals and firms and the consequences of those decisions.

• examines small economic units, the components of the economy (individuals, households, firms, industries)

Example:

How much it would cost for a university or college to offer a new course ─ the cost of the instructor’s salary, the classroom facilities, the class materials, and so on.  Having determined the cost, the school can then decide whether or not to offer the course by weighing the costs and benefits. 

Macroeconomics

• examines the aggregate behavior of the economy (i.e. how the actions of all the individuals and firms in the economy interact to produce a particular level of economic performance as a whole). 

• (national output, overall price level, aggregate unemployment)

Example:

Overall level of prices in the economy (how high or how low they are relative to prices last year) rather than the price of a particular good or service.

Microeconomics vs Macroeconomics

• Land

• Capital

• Labor

• Enterprise

Factors of Production

• Unemployment

• Poverty

• Poor quality of infrastructure

• Income Inequality

Basic Economic Problems

Unemployment

- A situation where a person actively searches for employment, but is unable to find work

- Considered to be a key measure of the health of the economy

1. Frictional

2. Cyclical

3. Structural

Types of Unemployment

Frictional

this occurs naturally when workers are between jobs, or have just graduated and are looking for work for the first time.

Cyclical

The economy regularly goes through ups and downs; When it enters a recession, more people become unemployed.

Structural

When there is a match between the skills People have learned in the skills the job market requires.

Recession

when the economy “shrinks,” businesses struggle, people lose jobs, and money doesn’t circulate as actively as before.