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Economics

Chapter 1 of Basic Microeconomics introduces the field of economics, focusing on the production, distribution, and consumption of goods and services. It distinguishes between microeconomics and macroeconomics, outlines the factors of production, and explains concepts such as opportunity cost and production possibilities frontier. Additionally, it discusses different economic systems and types of goods, emphasizing the importance of studying economics for informed decision-making.

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Avegail Gadiano
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2 views

Economics

Chapter 1 of Basic Microeconomics introduces the field of economics, focusing on the production, distribution, and consumption of goods and services. It distinguishes between microeconomics and macroeconomics, outlines the factors of production, and explains concepts such as opportunity cost and production possibilities frontier. Additionally, it discusses different economic systems and types of goods, emphasizing the importance of studying economics for informed decision-making.

Uploaded by

Avegail Gadiano
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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CHAPTER 1 - BASIC MICROECONOMICS

ECONOMICS
Is the social science that studies the production, distribution, and consumption of goods
and service. It examines how individuals, businesses, government, and societies allocate
resources to meet their unlimited wants and needs, how these decisions affect the
economy as a whole. Economics looks at issues like scarcity, supply and demand,
inflation, unemployment, and economic growth, aiming to understand how economies
function and how economic agents make decisions.

BRANCHES OF ECONOMICS

MICROECONOMICS MACROECONOMICS
Studies individual economic units like Examines the economy as a whole, looking
households, firms, and markets, focusing issues like inflation, unemployment,
on supply and demand, prices, and economic growth, and international trade.
resource allocation.

WHY DO WE NEED TO STUDY ECONOMICS?


Studying economics help us understand how the world works, make informed decisions,
and solve problems. By studying economics, we gain a deeper understanding of the world
and develop critical thinking, problem-solving, and analytical skills.

FACTORS OF PRODUCTION
1. Land – this includes natural resources like soil, water, minerals, and forest.
2. Labor – this refers to the human effort, skills, and time used in production.
3. Capital – this includes physical capital (machinery, equipment, buildings) and financial
capital (money, investments).
4. Entrepreneurship – this involves the risk-taking, innovation, and management skills of
individuals who start and run businesses.

PRODUCTION POSSIBILITIES FRONTIER


A production possibilities frontier (PPF) is a graphical representation showing the
maximum possible output combinations of two goods or services an economy can produce
given its resources and technology.

A. INCREASING OPPORTUNITY COST


Refers to the if idea that as you produce more of one good or service, the opportunity
cost of producing additional units increases. This happens because resources are being
shifted from producing one good to producing another, and some resources are better
suited for one good than the other.
CHAPTER 1 - BASIC MICROECONOMICS
B. OPPORTUNITY COST
Is the value of the next best alternative that is given up when a choice is made. It’s the
cost of choosing one option over another

4 ASSUMPTIONS OF PRODUCTION POSSIBILITIES FRONTIER (PPF)


1. Resources are fixed: the quantity and quality of resources (like labor, capital, and
land) are constant.
2. Technology is constant: the level of technology and production methods remain
unchanged.
3. Efficient production: resources are fully employed and used efficiently.
4. Two goods are produced: the PPF typically assumes an economy produces only two
goods or services, allowing for a simplified analysis of trade-offs.

ECONOMIC SYSTEM
An economic system is a framework that guides the production, distribution, and
consumption of goods and services within a society. It determines how resources are
allocated, and how economic decisions are made.

TYPES OF ECONOMIC SYSTEM


1. Market economy: private ownership, free market, and competition drive
economic decisions.
2. Command economy: government controls production, distribution, and prices.
3. Mixed economy: combination of private and government ownership, with
varying degrees of regulation.
4. Traditional economy: economic decisions based on customs, traditions, and
social norms.

DIFFERENT TYPES OF GOODS


1. Basic goods: essential goods that people need for survival, like food, water and
shelter.
2. Luxury goods: high-end goods that are desirable but not essential, like designer
clothing, jewelry, or fine dining.
3. Necessities goods: goods that are considered essential for decent standard of living,
like healthcare, education, or housing.
4. Inferior goods: goods that people buy less of as their income increases, like cheap or
low-quality products. Examples might include generic brands or low-cost food option.
5. Normal goods: goods that people buy more of as their income increases, like
electronics, entertainment, or travel. Demand for normal goods rises with income.
CHAPTER 1 - BASIC MICROECONOMICS

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