INTRODUCTION TO

ECONOMICS
OBJECTIVES:
Define economics and scarcity
Explain the economic problem
Discuss the three economic questions
What is economics?
The term economics is derived from the ancient Greek
expression “oikon nemein” which means ‘one who
manages and administers all matters relating to a
household’
Overtime, economics has come to refer to the careful
management of society’s scarce resources to avoid waste.

Economics – is the study of choices leading to the best possible use of

scarce resources in order to best satisfy unlimited human needs and
wants
The study of economics arises because people’s needs
and wants are unlimited or infinite but there is not
enough resources.
Resources are the inputs used to produce goods and
services wanted by the people and this is known also as
factors of production.
Scarcity is a very important concept in economics.
It arises whenever there is not enough of something in relation to
the need for it.
People cannot have everything they want, they must make
choices

Scarcity – is the situation in which available resources, or

factors of production, are finite, whereas wants are infinite.
Three basic economic questions: resource
allocation and output/income distribution

What to produce
How to produce
For whom to produce

The first two questions, what to produce and how to produce are
about RESOURCE ALLOCATION while the third question, for
whom to produce, is about the DISTRIBUTION OF OUTPUT
AND INCOME
Resource Allocation
Resource allocation refers to assigning available resources or FOP to specific uses
chosen among many alternatives, and involve answering the questions what to
produce and how to produce.

If a decision is made to change the amounts of goods produced, such as more food
and fewer weapons, this involves reallocation of resources

Overallocation of resources – when societies produce the ‘wrong’ amounts of

goods and services relative to what is socially desirable.

Underallocation of resources – too few socially desirable goods or services are

being produced
Distribution of output and income
For who to produce is concerned with the distribution of output an
dhow much output different individuals or different groups in the
population receive.

Distribution of income among individuals and groups in a population,

since the amount of output people can get depends on how much of it
they can buy which in turn depends on the amount of income they have.

Redistribution of income – when the distribution of income or output

changes so that different social groups now receive more or less income
and output than previously