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Introduction To Economics - Chapter 1

This document provides an introduction to economics. It defines economics as the study of how societies allocate scarce resources to meet unlimited wants. It distinguishes between microeconomics, which focuses on individual units, and macroeconomics, which looks at an overall economy. The three basic economic problems are what to produce, how much to produce, and how to produce. Four types of economic systems - traditional, command, market and mixed - are also introduced.

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33 views14 pages

Introduction To Economics - Chapter 1

This document provides an introduction to economics. It defines economics as the study of how societies allocate scarce resources to meet unlimited wants. It distinguishes between microeconomics, which focuses on individual units, and macroeconomics, which looks at an overall economy. The three basic economic problems are what to produce, how much to produce, and how to produce. Four types of economic systems - traditional, command, market and mixed - are also introduced.

Uploaded by

Abdinour
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CHAPTER

1
INTRODUCTION TO ECONOMICS
LEARNING OUTCOMES

At the end of the chapter, you should be able to:

 Interpret the definition and basic concepts of


economics
 Distinguish between microeconomics and
macroeconomics.

 Describe the three economic problems.

 Differentiate the four types of economic systems.


INTRODUCTION

 Economics is the most important aspect in human life.

 The desire of human beings is unlimited and they will try


as hard as possible to fulfill their demand to maximize
satisfactions.

 However, economics faces limited resources or factors


of production.

 Economics study how people fulfill their unlimited desire


with the limited resources.
DEFINITION OF
ECONOMICS
 Economics is defined as ‘a social science that studies
how people and society organize scarce and limited
resources to satisfy unlimited human wants’
 FOP are resources or inputs used to produce goods
and services.
(1) Land
─ Includes all natural resources which are derived
from the earth and land itself
─ Examples: timber, oil, coal, soil and water
─ ‘Rent’ is the return to land
DEFINITION OF ECONOMICS
(cont.)
(2) Labour
─ Labour or workers are defined as people who
contribute their energy mentally and physically to
earn wages or salaries.
─ Labour can be categorized into:
(a) Skilled labour
(b) Semi-skilled labour
(c) Unskilled labour
─ ‘Wages/salaries’ are the returns to labour
DEFINITION OF ECONOMICS
(cont.)
(3) Capital

─ Capital refers to the stock of goods created by society


to help them in the production of goods and services.

─ In other words, it is man-made goods used to produce


other goods and services.
 For example, machinery, tools and
equipment, building, factories and so on.

─ Interest is the return to capital.


DEFINITION OF ECONOMICS
(cont.)
(4) Entrepreneurship
─ Entrepreneur refers to a person who has the ability of planning,
organizing, directing and controlling.
─ Entrepreneur is a person who organizes the other FOP to
produce goods and services.
─ The difference between a labour and an entrepreneur is that,
entrepreneur takes risk in setting up his own business.
─ On the other hand, labour works for an entrepreneur and does not
take risks.
─ ‘Profit’ is the return to the entrepreneur.
 FOPs are limited and society will try to use them efficiently to
produce goods and services which later satisfy their unlimited
wants.
DEFINITION OF ECONOMICS
(cont.)
 The unlimited wants :

(1) Goods
 Can be seen and touched
 E.g.: books, cars and computers

(2) Services
 Intangible things
 E.g.: transportation, education, etc.
BRANCHES OF ECONOMICS
BASIC ECONOMIC
PROBLEMS

What to produce

• Refers to the type of product to produce


• Decision must be made about what to produce
with the limited resources available.
• E.g.: whether to produce radio or TV
BASIC ECONOMIC
PROBLEMS

How much to produce

• Refers to the quantity of goods and services to be


produced.
• It depends on the demand from consumers.
• Societies must decide what to produce and how
much to produce to ensure that scarce resources
are utilized properly and efficiently.
BASIC ECONOMIC
PROBLEMS
How to produce

• Refers to the technique or method of production: who


will be producing the goods and services using what
resources and technology?
• The method of production could be either labour
intensive or capital intensive.
• It involves the cheapest method of production to
minimize possible COP and maximize profit.
BASIC ECONOMIC
PROBLEMS

For whom to produce

• Refers to the group of people in the society who

will buy the goods and services.

• It depends on the society’s income level.

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