ECONOMICS

The study of how scarce, or limited, resources are used to satisfy peoples unlimited material wants and needs A branch of knowledge that deals with: how the scarce resources can be used to produce valuable goods and services and how to, distribute them efficiently among different classes of people in the society
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TWIN THEMES OF ECONOMICS

Scarcity & Choice Efficiency (Allocative)

SCARCITY & CHOICE

This is the distinguishing characteristics of an economic good Inability to provide enough goods and/or services to satisfy the wants and needs of all people An economic good is scarce in the sense that it is not freely available Problem of selection and choice for allocating limited resources (having alternative uses)among unlimited wants
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EFFICIENCY (ALLOCATIVE EFFICIENCY)

Efficiency: absence of waste, or the use of economic resources that produces the maximum level of satisfaction with the given inputs & technology Producing the largest attainable output of a desired quality from a given set of resources; occurs when goods and services are produced at the lowest possible cost
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MICROECONOMICS & MACROECONOMICS

Microeconomics
It studies the behavior of individual decision making units such as consumers, resource owners, business firms & households etc. It includes such topics as consumer behavior, costbenefit analysis, the determination of business profits, and prices in specific markets

Macroeconomics

Focuses on the operation of the economy as a whole (aggregate) and the interactions of the household, business, government, and foreign sectors in the economy It includes such topics as inflation, unemployment, taxes and government spending, and money etc.
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MANAGERIAL ECONOMICS
Managerial economics (sometimes referred to as business economics), is a branch of economics that applies microeconomic analysis to decision methods of businesses or other management units As such, it bridges economic theory with economics in practice
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PROBLEMS OF AN ECONOMIC ORGANIZATION What goods/services are to be produced ? For whom to be produced? How much to be produced? How to be produced? (the technique of production to be labour intensive or capital intensive)
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ECONOMIC SYSTEMS
questions viz. what, how & for whom concerning resource allocation are primarily determined by the forces of supply & demand problems what, how & for whom- are principally determined by government directives. Also called a centrally planned economy mechanism but also uses a variety of govt. interventions to handle macroeconomic instability & market failures

Market Economy: Economic problems/

Command Economy: the key economic

Mixed Economy: relies primarily on the price

INPUT & OUTPUT

Input: Resources (goods or service) used for production (also called factors of production) Output: The various goods or services produced, either for consumption or for further production Factors of Production: broadly classified into four categories; Land all nature-originating production inputs (receives rent) Labour all effort, both physical and mental (receives wages) Capital money used for further production in the form of warehouses, machinery, and equipment etc. ( receives interest) Entrepreneurship ability to take risk and to organize all the factors of production (receives profit)
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THE CIRCULAR FLOW OF ECONOMIC ACTIVITY

THE CIRCULAR FLOW OF ECONOMIC ACTIVITY SHOWS THE CONNECTIONS BETWEEN FIRMS AND HOUSEHOLDS IN INPUT AND OUTPUT MARKETS

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THE CIRCULAR FLOW OF ECONOMIC ACTIVITY

PRODUCT MARKET

HOUSE-HOLDS

FIRMS

FACTOR MARKET
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OPPORTUNITY COST
Cost of a decision or a purchase measured in terms of the foregone alternative/ opportunity The value of the next-best use opportunity) for an economic good/service Opportunity cost is the opportunity lost The value of the sacrificed alternatives
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TYPES OF GOODS
Final goods: A good that is produced for final use or consumption & not for resale or further production Intermediate goods: Goods used for further production Goods that have undergone some manufacturing or processing but have not yet reached the stage of becoming final products
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PRODUCTION POSSIBILITY FRONTIER (PPF) PPF shows two different combinations of two commodities which can be produced by the available resources and technology

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