1.1._Introduction_to_economics_2022 (13)

INTRODUCTION TO ECONOMICS

• Economics is the study of how societies allocate scarce resources to meet unlimited wants and needs.

KEY ECONOMIC CONCEPTS

• Intervention: Government involvement in the economy to correct market failures.

• Scarcity: The fundamental economic problem of having limited resources to meet unlimited wants.

• Choice: Decision-making by economic agents between competing alternatives.

• Interdependence: The reliance of economic agents on one another.

• Efficiency: Optimal use of resources to achieve maximum output.

• Equity: Fair distribution of economic resources and opportunities.

• Change: The dynamic nature of economies, reflecting shifts in choices and technology.

• Sustainability: Meeting present needs without compromising future generations' ability to meet theirs.

• Economic Well-Being: A measure of prosperity and quality of life in an economy.

SCARCITY AND ECONOMIC PROBLEM

• Scarcity occurs when human wants exceed what can be produced to fulfill those wants.

CHOICE AND DECISION-MAKING

• Economic decision-makers face trade-offs and must choose among competing alternatives. The consequences of these choices are studied in economics.

EFFICIENCY IN ECONOMICS

• Efficiency is measured by the ratio of useful output to total input, indicating how well resources are utilized.

EQUITY VS EQUALITY

• Equity refers to fairness in economic outcomes, contrasting with equality, which involves similar outcomes among various individuals or groups.

ECONOMIC WELL-BEING

• This refers to the overall prosperity and quality of life experienced by individuals within an economy.

SUSTAINABILITY

• Sustainability emphasizes the need for current generations to meet their needs without compromising the ability of future generations to meet theirs.

CHANGE IN ECONOMICS

• Economic change is crucial both for theoretical development and practical application in addressing real-world issues.

INTERDEPENDENCE OF ECONOMIC AGENTS

• Economic agents, including consumers, governments, and businesses, interact within and across borders to achieve economic objectives.

ECONOMICS DEFINED

• A social science that examines the choices made by individuals, businesses, and societies in response to the problem of resource scarcity.

DIFFERENCES BETWEEN ECONOMICS AND EXACT SCIENCES

1. Economics relies on varied sources of observations.

2. Economic outcomes are influenced by historical conditions.

3. Human behavior and decisions play a significant role in economic outcomes.

4. Economic knowledge can sometimes be gained through introspection.

ECONOMICS SUBFIELDS

• Microeconomics: Examines individual households and firms in specific markets.

• Macroeconomics: Studies the overall economy, focusing on national and global trends.

POSITIVE VS NORMATIVE ECONOMICS

• Positive Economics: Involves objective analyses and predictions about economic activities.

• Normative Economics: Offers subjective recommendations based on value judgments regarding economic policies.

OPPORTUNITY COST

• The concept of opportunity cost represents the next-best alternative that is forgone when a decision is made.

FACTORS OF PRODUCTION

Key Types

1. Land: All natural resources, including agricultural land, minerals, and water.

2. Capital: Physical tools and human capital, including machines and the workforce.

3. Labor: The human effort, both mental and physical, in producing goods and services.

4. Technology: The methods and processes used to combine resources for production.

5. Entrepreneurship: The ability to organize factors of production, take risks, and innovate.

SCARCITY AND DECISION MAKING

• Scarcity necessitates choices and results in opportunity costs, highlighting the need to prioritize among unlimited wants.

BASIC ECONOMIC QUESTIONS

1. What to produce?

2. How to produce it?

3. For whom to produce?

GOODS IN ECONOMICS

• Free Goods: Goods with zero opportunity cost.

• Economic Goods: Scarce goods requiring trade-offs in production and consumption.

ECONOMIC MODEL

• An economic model is formulated based on assumptions to predict behavior within an economy and to develop theories by comparing predictions against actual data.

RATIONAL BEHAVIOR

• Economic agents behave rationally, making decisions aimed at maximizing their utility.

CETERIS PARIBUS

• This principle states that all factors not relevant to the study should remain constant, allowing analysis of specific economic relationships.

TYPES OF ECONOMIES

• Planned Economy: All production decisions are made by government authorities.

• Free Market Economy: Decisions are made by individuals and driven by market forces.

• Mixed Economy: Combines elements of both market and planned economies.

PRODUCTION POSSIBILITIES CURVE (PPC)

• Illustrates the maximum possible output combinations of goods and services an economy can produce when all resources are fully employed and used efficiently.

CIRCULAR FLOW OF INCOME

• Involves interactions between different sectors: consumers, businesses, government, and the financial sector, showcasing the flow of resources and payments.