Economic Way of

Thinking
Unit 1 Chapter 1
 1. What is Economics?
The study of how society chooses to efficiently
allocate its scarce resources to the production of
goods and services to satisfy unlimited wants.

The ability to avoid wasting materials,

energy, efforts, money, and time in
doing something or in producing a
desired result.
In a more general sense, it is the ability to do
things well, successfully, and without waste.
2. What do Economists do?

Developing theories and

economic laws
Organizing, that explain how the economy
analyzing and works and to predict what might
interpreting happen in the future.
Examining data about those
economic behaviors.
how individuals,
businesses, governments
and societies choose to use
scarce resources to satisfy
their wants.
 Think about the Gas Problem

Who decides

Where we Prices for

will buy gasoline
the oil?
3. Branches of Economics

Micro-economics Macro-economics

▪ Study of choices made by ▪ Studies the behavior of entire

economic actors such as economies.
households or businesses.
 Determine whether the following are
examples of micro or macro economics

1. A 2% increase in unemployment last year in Egypt.

 Macro

2. Zara branches reach 10 in the year 2013.

 Micro
 Branches of Economics
Normative Economics
▪ Involves judgment of what
economic behavior ought to
be.
▪ Focuses on the value of
economic fairness or what the
economy should be.
Positive Economics
▪ Study of economic behavior as
it is.
▪ Describes and explains various
economic phenomena.
 Determine whether the following are
examples of Positive or Normative economics

1. A fall in incomes will lead to a rise in demand for own-label

supermarket foods.
 Positive
2. Pollution is the most serious economic problem.
 Normative
 4. What is scarcity?

Scarcity refers to the
basic economic problem,
and is the result of people
having "Unlimited Wants
and Needs" or always
wanting something new,
while having "Limited
Resources."
Interesting Videos
What gives a dollar bill its value?
https://www.youtube.com/watch?v=XNu5ppFZbHo

Why don't countries just print more money? : Explained in 2

minutes

https://www.youtube.com/watch?v=u10cAJbb7nE
Needs VS. Wants

Needs Wants

Necessities such as Desires that can be

food, shelter and satisfied by consuming a
clothing that are good or service. (newer
necessary for survival. phone or bigger car)
5. Goods & Services
Goods

▪ Physical objects that can be

purchased such as food, clothing
and furniture. (Consumer, capital
and free goods)
– Capital goods are used by one business to help
another business produce consumer goods.
Include items like buildings, machinery, and tools.
– Consumer goods are used by consumers and
have no future productive use  includes food,
appliances, clothing, and cars.
– Free goods are available in abundance for
everyone to use and almost don’t cost anything
includes air, seawater, and web-pages.
Inferior, Normal, and Luxury Goods

Inferior goods Normal goods Luxury (Superior) goods

▪ Cheap snacks ▪ Shampoo/ tooth ▪ Private health

paste insurance
▪ Cheap oils
▪ Natural Cheese ▪ Air travel
▪ Processed Cheese
▪ Fruit Juice ▪ Antique furniture
▪ Bus travel
▪ Fresh chicken and ▪ Evian water
▪ Tinned meat meat
Increased income leads
Increases income Increased income leads to bigger percentage
leads to fall of demand to higher demand increase in demand
Services

▪ Work that one person or entity

performs for another for
payment. For example:
teachers, doctors, nurses, sales
clerk etc.
6. Producer and Consumer

Note: There are few pure goods or services, generally

most transactions are a mix of both.

For example for cutting your hair

Producer (service), one fist
Consumer
uses shampoo, styling products and scissors (goods)

A person or entity
Person who buys
who makes the good
the good/service
or provides the
for personal use.
service.
7. Resources
Anything that people use to
make or obtain what they
need or want.

Limited Resources: limited

in supply for humans. For
example: oil, gas or skilled
labor.
Unlimited Resources/Free
Goods: unlimited in supply
for humans. For example:
air or ocean water.
 Resources
▪ Resources can be further classified as Factors of
Production.
All the natural resources
found on or under the
ground that are used to
produce goods or services. Land
All the physical resources Capital
made and used by people to
produce and distribute
goods and services.
All the human, time,
effort and talent that go
in the production of goods
and services.
Labor
Enterprise The combination of vision,
skill, ingenuity and
willingness to take risks
that is needed to create
and run a new business.
 8. Scarcity leads to Three essential
economic questions

For whom
What to to
produce? How to produce?
produce?

 Deciding on the mix of goods  Using scarce resources in  How are goods/services
and services. the most efficient way to distributed among people
 How much to produce from satisfy society’s wants. in the society.
each good/service.