ECONOMICS FOR

BUSINESS
Mr Tahir Nowaz

Class 1 – The Nature and Scope of Economics

The Basic Economic Problem
Human wants are infinite, but natural resources are
finite

Scarcity – the excess of human wants over what can

actually be produced

What is the purpose of Economics?

Scarcity, Choice & Opportunity Cost
Whenever there is scarcity, you are presented with a
choice

Opportunity Cost – The next best alternative that

could have been done with your given resources

In Economics, we assume that all agents (people) are

rational. They choose whatever gives them the greatest
benefit relative to cost
Economic Systems
(Advanced students only)
Command economy (centrally planned economy)
 Land and capital are collectively owned by the
government
 Government plans the allocation of resources between
current consumption and future investment
 Government decides the output of each industry and
firm, and the techniques that will be used for
production. Also decides the prices of output.
 Characteristics of the Socialist and Communist
political system.
Free-market Economy
 Land and capital are privately owned, all economic
decisions taken by individuals
 Firms seek to maximise profits, workers seek to
maximise wages, consumers seek to get the best value
for money
 System revolves around the price mechanism
 People respond to incentives
 Pure Capitalist system
Mixed economy
 A free-market economy where there is some government
intervention
 Governments may control prices of some goods, by
using taxes and subsidies
 Governments may have influence over incomes, by using
taxes, benefits, minimum wages etc.
 Public and private sector
 Most real world economies use this system
Think of 3 advantages and 3 disadvantages of:
Command economy system
Free market system
Mixed economy system