CHAPTER 1

INTRODUCTION TO
ECONOMICS
 Table of content
In the end of this chapter, you
should be able to:
Define economics and distinguish
between microeconomics and
macroeconomics.

Describe basic economic concepts:

scarcity, choices and opportunity cost.

Use the production possibilities curve

to explain the basic economic
concepts.
DEFINITION ECONOMICS
Economics is defined as ‘a
social science that studies
how people and society
organize scarce and limited
resources to satisfy unlimited
human wants.’
WHAT IS ECONOMICS ?
Limited resources vs Unlimited
wants.

Society must make a choice on

how to use the FOP to minimize
wastage.
 BRANCH OF ECONOMICS
MICROECONOMICS
Microeconomics focuses on
the individual parts of the
economy.
o How households and firms
make decisions and how
they interact in specific
markets.
MACROECONOMICS
Macroeconomic looks at the
economy as a whole.
o Economy-wide phenomena,
including inflation,
unemployment, and economic
growth.
ECONOMIC RESOURCES

❑ Sometimes called factors of production.

❑ Used in the production of goods and services.
❑ Classified as land, labor, capital, and entrepreneur.
 FACTORS OF PRODUCTION
1. LAND: 2. LABOUR:
❑ Labour refers to any human effort
❑ Land refer to all free gifts of nature and
( physically and mentally) which is
includes it only land itself, but also all the
directed to the production of goods or
mineral in and on the land (like oil, coal and
services.
iron), sea and everything in sea.
❑ Payment for used labour is WAGE or
❑ Payment for used land is RENT.
SALARY.

3. CAPITAL: 4. ENTREPRENEUR:

❑ Capital refer to those man-made resources

❑ Entrepreneur refers to the person who
that are used to produce goods or services..
❑ Ex: tools & equipment, plant, building, combine all factor of production to
machinery. produce goods and services.
❑ They also bear risk to get PROFIT.
❑ Payment for used capital is INTEREST.
 BASIC ECONOMIC CONCEPTS
Choice

Choice is necessary because

we cannot fulfill all wants
and must choose from the
available alternatives.
Opportunity cost
The second best alternative OPPORTUNIT
forgone after making choice.
To get more goods available,
some of goods must be
sacrifice.
CHOICE
Scarcity
The condition in which our wants
(for goods) are greater than the
SCARCITY limited resources.
We wants goods, but there are just
not enough resources available to
provide us with all the goods we
wants.
Y COST
 Exercise questions
❑ QUESTION 1
Differentiate between microeconomics and macroeconomics.
(5 points)

❑ QUESTION 2
Differentiate between scarcity and opportunity choice.
(5 points)
 BASIC ECONOMIC PROBLEMS
What to produce?
Refers to the type of product to
produce.
Decision must be made about
what to produce with the limited
resources available.
Ex: whether to produce
smartphone or TV.
How much to
For whom to produce?
produce ?
Refer to the technique or method
Refer to the quantity of goods and
of production; who will be
services to be produced.
producing the goods and services
using resources or technology?
Its depends on the demand from
consumers.
The method of production could
be either labour intensive or
Societies must decide what to
capital intensive.
produce and how much to produce
to ensure that scare resources are
It involves the cheapest method to
utilized efficiently.
maximize profit.
 PRODUCTION
POSSIBILITIES CURVE
A production possibilities curve shows the alternative
combinations of two goods which can be produced
with the existing resources and the current level of
technology.

Assumptions:
❑ Only two goods are produced in a nation.
❑ Fixed technology.
❑ Fixed resources
❑ Full level of employment (the FOP are used
efficiently (no waste of resources and
unemployment).
 PRODUCTION
POSSIBILITIES CURVE
Defence Goods (million)

Z
150 A
B UNATTAINABLE Point outside the PPC
(Point Z) 🡺 SCARCITY
C
120 Y
D Point along the PPC 🡺
90 CHOICES
ATTAINABLE

60 Point inside the PPC (Point Movement from one point

E
to another (point C to
Y) 🡺 Waste of resources
D) 🡺 OPPORTUNITY
30 and inefficiency
COST
F
Consumer Goods (million)
0 10 20 30 40 50
 PRODUCTION POSSIBILITIES CURVE
Defence Goods (million)
North Korea If it allocates its all resources to
produces two defence goods, it will produce at
products—defence Point A
A goods and
If it allocates its all resources to
150 B consumer goods consumer goods, it will produce at
Point F
C
120 If North Korea is at point C on the
D PPC, it can produce the
90 combination of 120 million defence
goods and 20 million units of
E consumer goods
60
Point D shows production of 90
30 million defence goods and 30
million units of consumer goods
F Consumer Goods (million)
0 10 20 30 40 50
 SHAPE OF PRODUCTION POSSIBILITIES CURVE

(1) CONCAVE (2) CONVEX (3) LINEAR

The opportunity cost The opportunity cost is The opportunity cost

is increasing. decreasing. is constant.
FACTORS THAT INFLUENCE
THE SHIFT OF THE PPC
Outward shift in PPC

Increase in the level of

1 technology.

Increase in economic
2 growth.

3 Increase population.
 FACTORS THAT INFLUENCE
THE SHIFT OF THE PPC
Inward shift in PPC

1 Recession.

Decline in economic
2 growth.

Natural disaster/ war/

3 disease.
FACTOR THAT INFLUENCE SHIFT IN
PPC

The PPC shifts outward due to The PPC shifts inward due to
Increase in economic growth. decline in economic growth.
 FACTOR THAT INFLUENCE SHIFT IN
PPC

The PPC shifts outward for Good The PPC shifts inward for Good X.
Y.
 EXERCISE
•The table below shows the combination buying Durian and mangosteen using income available in Mantin.

Combination Durian (kg) Mangosteen (kg) Opportunity cost

A 0 15  
B 1 13  
C 2 9  
D 3 3  
E 4 0  

a. Define opportunity cost. (2 points)

b. State type of PPC based on the opportunity cost above. (1 point)

c. Calculate opportunity cost if a consumer wants to buy 4kg of Durian.

(2 points)
d. Calculate opportunity cost if a consumer wants to buy 9 kg of Mangosteen.
(2 points)

e. Sketch effect on the PPC curve, if the economic 2021 in recession. (2 points)

f. State TWO (2) assumption to construct PPC. (1 point)

 K Y OU !
TH AN