INTRODUCTION OF ECONOMICS

SCARCITY
- NOT ENOUGH FOOD ON THE TABLE,NOT ENOUGH MONEY TO PAY ONE’S DEBT OR NOT INCOME TO
MEET ALL THE FAMILY’S NEEDS.THIS, IN EFFECT, IS THE EXISTENCE OF WHAT WE CALL SCARCITY.
- Is a Condition Where There Are Insufficient Resources To Satisfy Needs And Wants Of a
Population

ECONOMICS
- HELP US TO UNDERSTAND THE DECISION THAT INDIVIDUALS,FAMILIES, BUSINESSES,OR SOCIETIES
MAKE, GIVEN THE FACT THAT THERE ARE NEVER RESOURCESTO ADDRESS ALL NEEDS AND DESIRES.
- ECONOMICS AS THE STUDY IN SOCIAL SCIENCE THAT ENVOLVES THE USE OF SCARCE RESOURCES.

ALFRED MARSHALL
- DESCRIBE ECONOMICS AS S STUDY OF MANKIND IN THE ORDINARY BUSINESS OF LIFE.
- It examines part of the individual and social action that is most closely
connected with the attainment and use of material requisites of well-being

ABSOLUTE SCARCITY
- it may be that there are simply insufficient quantities of a resource to
meet human needs or wants.
- No matter how much we look or try to find additional sources, there are none to be had.

RELATIVE SCARCITY
- there may be physical quantities of a resource present but scarcity exists because of
problems about supply or distribution.

CHOICE AMD DECISION-MAKING

- The process of making a choice is not always easy. Because resources are scarce, consumers
need to make wise choices.

ECONOMIC DECISION
- are those decisions in which people (or families or countries) have to choose what to do in a
condition of scarcity.
- This means that people have to make economic decisions because they want more things
than they can actually get.

INDIVIDUAL
- person has to make economic decisions

FAMILIES
- have to make essentially the same kinds of decisions

COUNTRIES
- have to make bigger decisions
- They have to decide what level of taxation they will impose on various types of economic
activities.
- All of these are decisions that have to be made because people (as individuals or as groups
of people) want many more things than they can have and therefore must choose between
various alternatives.
OPPORTUNITY COST
- refers to the cost of the next best alternative use of money, time, or resources when one
choice is made rather than another.

ECONOMIC RESOURCES
- also known as Factors of production, are the resources people use to produce goods and
services; they are the building blocks of the economy.

LAND
- The first factor of production is land, but this includes any natural resource used to produce
goods and services.

LABOR
- The second factor of production is labor. Labor is the effort that people contribute to the
production of goods and services.

RENT
- The income that resource owners earn in return for land resources is called rent

WAGES
- The income earned by labor resources is called wages and is the largest source of income for
most people.

CAPITAL
- The third factor of production is capital. Think of capital as the machinery, tools and
buildings humans use to produce goods and services.

INTEREST
- The income earned by owners of capital resources is interest.

ENTREPRENEURSHIP
- The fourth factor of production is entrepreneurship. An entrepreneur is a person who
combines the other factors of production - land, labor, and capital - to earn a profit.

PROFIT
- The payment to entrepreneurship is profit.

ECONOMIC AS SOCIAL SCIENCE

- Economics is regarded as a social science because it uses scientific methods to build
theories that can help explain the behavior of individuals, groups and organizations.

MICROECONOMICS
- focuses on the actions of individual agents within the economy, like households, workers,
and businesses

MACROECONOMIC
- Looks at the economy as a whole. It focuses on broad issues such as growth of production,
the number of unemployed people, the inflationary increase in prices, government deficits,
and levels of exports and imports.

Microeconomics and macroeconomics are

not separate subjects, but rather complementary perspectives on the overall subject of the
economy.
MONETARY POLICY
- refers to the policy that involves altering the level of interest rates, the availability of credit
in the economy, and the extent of borrowing

FISCAL POLICY
- the economic policies that involve government spending and taxes

ECOSYSTEM
- An economic system is an organized way in which a country allocates resources and
distributes goods and services across the whole nation or a given geographic area.
- An economic system defines how all the entities in an economy interact. Defining them
today is much more complicated than it used to be. Ancient systems were relatively simple –
trade was carried out using barter and there were very few treaties and rules of engagement.

MARKET ECONOMY
- Prices are determined by levels of supply and demand, instead of central
and or local government.
- . All decisions regarding investment and salaries are also driven by market forces in a
market economy.

PLANNED ECONOMY
- all decisions regarding production, distribution, salaries, investment and
prices are made by a central authority – usually the government.
- The closest examples to this type of economy today are North Korea and Cuba (to a lesser
extent).

MIXED ECONOMY
- Market economies sometimes get into trouble, at which point the government feels
compelled to intervene.
- Sometimes, when lawmakers believe some players are being exploited unfairly, or the level
playing field for business is under threat, the government may become involved.

WHY ECONOMICS IS IMPORTANT?

You may have asked yourself, “What is the importance of economics?” and “What's the
meaning of the economy?” In a nutshell, an economy refers to a region or country’s resources
and wealth,especially as it pertains to producing and consuming goods and services.
Economics is important because it helps people understand how a variety of factors work with
and against each other to control how resources such as labor and capital get used, and how
inflation, supply, demand, interest rates and other factors determine how much you pay for
goods and services.

Positive economics is objective and fact based, while normative economics is subjective and
value based. Positive economic statements must be able to be tested and proved or disproved.
Normative economic statements are opinion based, so they cannot be proved or disproved.

GDP
THE COUNTRY’S TOTAL INCOME IF WE ADD EVERYONE’S INOME from household wages
to business profits and government surpluses we get GDP.

(Consumption + Investment + Government Expenditure + Exports – Import)

GNP
is calculated by adding the personal consumption expenditures, government expenditures,
private domestic investments, net exports and all income earned by residents in foreign
countries, minus the income earned by foreign residents within the domestic economy.

excludes the value of any intermediary goods to eliminate chances of double counting since
these entries are included in the value of the final products and services.

(GDP + Net Income Inflow from Oversees – Net Income Outflow to Foreign Countries).

GROSS NATIONAL PRODUCT vs. GROSS DOMESTIC PRODUCT

Both the Gross National Product (GNP) and Gross Domestic Product (GDP) measure the
market value of products and services produced in the economy. The terms differ in what
constitutes an economy since GDP measures the domestic levels of production while GNP
measures the level of the output of a country’s residents regardless of their location.