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Economics is a social science that studies how individuals and firms make choices regarding scarce resources. It is divided into microeconomics, which focuses on individual and firm behavior, and macroeconomics, which examines the economy as a whole. Key concepts include opportunity cost, the production possibilities curve, and the law of increasing opportunity cost.

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4 views

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Economics is a social science that studies how individuals and firms make choices regarding scarce resources. It is divided into microeconomics, which focuses on individual and firm behavior, and macroeconomics, which examines the economy as a whole. Key concepts include opportunity cost, the production possibilities curve, and the law of increasing opportunity cost.

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Principles of Economics

Dr. Ramy Elazhary


What do we mean by
Economics
Economics is a social science
that examines how people
choose among the alternatives
available to them. It is social
because it involves people and
their behavior. It is a science
because it uses, as much as
possible, a scientific approach
in its investigation of choices.
Two Main Branches of Economic Analysis

MICROECONOMICS MACROECONOMICS
Microeconomics

is a branch of mainstream
economics that studies the
behavior of individuals
and firms in making
decisions regarding the
allocation of scarce
resources and the
interactions among these
individuals and firms
Labour

Factors of Land
Production Capital

Entrepreneur
Scarcity
wants and desires
are unlimited

resources are
limited

comparative
scarcity
Opportunity Cost
• Opportunity cost is the value of the best
alternative forgone in making any choice.

Profits and Economic Costs


• profit = total revenue - total cost

Total revenue is the amount received from the sale


of the product

Total cost includes (1) out-of-pocket costs and (2)


opportunity cost of all inputs or factors of
production.
= (Explicit + Implicit) costs
Opportunity Cost
• opportunity cost is the cost associated
with taking one course of action over
another. This cost does not have to be
monetary; it is the benefit that could have
been gained from doing something else.
This is an example of a tradeoff
B
unattainable
The 200
E
Production inefficient
Possibilities 120
A
C
Curve

Product A
D

0
40 100

Product B
The 200

Production
Possibilities Production
possibility curve

Product A
Line

0
Product B 100
• The slope of production possibility curve
is marginal opportunity cost which refers to the
additional sacrifice that a firm makes when
they shift resources and technology from
The Slope of production of one commodity to the other.
a Production
Possibilities
Curve
The Slope of
a Production
Possibilities
Curve
The Law of
Increasing
Opportunity Cost

diminishing
marginal rate
of substitution
• The Law of Increasing Opportunity
Cost says that when a person, business, or
other entity continues on a particular course
of action, the opportunity cost for that
Law of action will continually increase. With limited
Increasing resources, each time a decision is made, or
Opportunity resources allocated, the cost of not making an
alternative choice increases.
imports imports
exports exports
Spending on G/S
Goods and Services

Investment Savings
Firms Households
Factors of Production
Wage, Rent, Interest Rate, Profit
Taxes Taxes
subsidies subsidies
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