INTRODUCTION TO

ECONOMICS

1
 DEFINITION OF ECONOMICS
Economics is the social-science study dealing with the use of scarce
resources to obtain the maximum satisfaction of society’s virtually
unlimited material wants.
McConnell & Brue
Economics is the study of how society chooses to allocate its scarce
resources to the production of goods and services in order to satisfy
unlimited wants.
Irvin B. Tucker
As “the science which studies human behavior as a relationship between
ends and scarce means which have alternative uses.”
L. Robbins

2
MOST ECONOMISTS AGREE THAT ECONOMICS IS:
a social-science study which concerns with human behavior in
making the decision on how people use scarce resources in
fulfilling their unlimited wants.

2 problems in the economy

a) Productive resources to produce G & S are limited
b) Human wants for G & S are unlimited

Economy has to decide how to use these resources efficiently

in order to attain the max possible satisfaction for the
members

3
 DEFINITIONS OF
MICRO AND MACRO ECONOMICS

THE WORDS :

“Micro” means small

“Macro” means large

4
MICROECONOMICS

Part of economics that studies individual units or

economic elements in the process of making decision,

such as the decision made by the households, firms,

government and etc. as individual units in an economy.

For example:
i. a study to look at the interaction between the producers
and consumers in a market.
ii. income of a teacher

5
EXAMPLES OF MICROECONOMICS STUDY
 issues like the demand and supply of cars in the market
in Malaysia

 the production of canned pineapples by the farmers in

Johor

 the increase in price of sugar after a shortage of sugar

cane production in Perlis

 the increase in price of cloths after the government

announcement of 10% bonuses to the public servants

Thus, all issues here focuses on the study of a particular specific

individuals or elements towards its behavior and factors
concern.
6
 MACROECONOMICS

studies the economy as a whole or deals with the economic

aggregates.

It concerns with the study of all individual units or economic

elements together in the process of making decision in an
economy as a whole.

7
EXAMPLES OF MACROECONOMICS ISSUES

 national income, economic growth, inflation,

unemployment, government deficit budget,
monetary policy, balance of payment,
international trade
 it focuses on viewing at the general structure
of the aggregate components of elements in the
economy as a whole
 For example, the effect of aggregate
expenditure on general prices and national
income in the economy as a whole.

8
 BASIC ECONOMIC CONCEPTS
i. Scarcity – the condition in which human wants are forever
greater than the availability of economic resources time &
goods; “YOU CAN’T HAVE ALL YOU WANT”

Resources in the definition of economics refers to factors of

production or inputs

1. LAND
 Productive inputs provided by nature (natural resources)
 Anything that is produce naturally
 Ex: forest, gold, tin, petroleum, water, air etc.

2. LABOR
 Mental or physical capacity of workers in producing
goods and services
 Ex: lawyer, teacher, mechanics, lifeguards etc. 9
3. CAPITAL
 Other goods that contributes to the production of
final goods and services.
 Ex: machinery, equipment, transportation (trucks &
lories), warehouses, factory/plant

4. ENTREPRENEURSHIP
 Creative ability of individuals to look for profits by
combining resources to produce innovative products.
 One who looks for opportunities, highly motivated,
innovative, risk averse
 If weren’t for entrepreneurs, fishermen will still fist
using sticks and farmers will still milk cows using
hands.

10
 Labor
Labor
Land
Land Capital
Capital

Entrepreneurship organizes
Entrepreneurship organizes
resources to produce goods
resources to produce goods
and services
and services

11
ii. Choice – since factor of production are limited, choices must then be
made between various g & s to satisfy the potential dmd – max utility
(consumer) & max π (producer)

iii. Opportunity Cost (OC)

– the best alternative sacrificed for a chosen alternative
– real cost forgone for choosing the next best alternative

Examples of opportunity cost decision:-

i. Individual
a) To fly or drive to Penang
b) To stay in a resort or Pak Long’s place while in Penang.

ii. Firm
a) To build low cost apartment or double-storey houses

iii. Country
a) To spend on health or education

12
 4 BASIC ECONOMICS QUESTIONS/PROBLEMS
i. WHAT to produce?
• Knowing that resources are limited a producer has to
decide what to produce.
 Do you want to produce military goods or consumer
goods?
 Should we produce small cars or large cars ?
 Produce more public transportations (buses,
commuters, LRT, monorail) or private vehicles?

13
ii. HOW to produce?
• How to mix technology and resources to produce goods
and services.
 What is the most cheapest or economical way to
produce?
 One has to decide whether to use capital (machine) or
labor (human) intensive.
 The most important thing is to minimize the cost of
production

14
iii. HOW many/when to produced?
• depends on the demand from consumers and also the
availability of resources.

iv. For WHOM to produce?

• It refers to how goods and services are distributed among
society.
• Who is the market? Who is going to get the goods
produced? Should everyone get an equal share? Is it for
the high-income earners or for the low/ idle income
earners.

15