INTRODUCTION

TO ECONOMICS
 Topic Learning Outcomes

At the end of this topic, student should be

able to:

1.To describe economics theories

2.To discuss basic economics concepts
3.To discuss economics systems
 What is Economics?

Economists study the Economics Study of how people

choices we make and use their limited
also the consequences of resources to fulfill
these choices unlimited wants and
need.

Microeconomics Macroeconomics
 study of small individual economic  studies the aggregate behavior of
units. the entire economy

 ex: households, firms and industries  ex: unemployment, inflation, GDP,

making choices. international trade, etc
 Economics Resources

• Sometimes called factors of production

• Used in the production of goods and services
• Classified as land, labor, capital, and enterprise
• Scarce relative to the unlimited wants
 Basic Economics Concepts

1. Scarcity
economic resources are limited compared to wants which are
unlimited
scarcity – impossible to satisfy our unlimited
wants with the limited resources
wants always exceed the limited resources
Peoples’ wants are greater than the economy’s ability to
produce desirable goods & services
 Basic Economics Concepts
1. Scarcity Cont.
• arises because human wants for goods & services are
infinite but the resources required to produce them are
finite.
• a relative concept – resources are not scarce in themselves,
they are scarce in relation to the demands placed upon
them
• a universal problem as it applies to all economies
• no country in the world has enough resources to produce
enough goods & services to completely satisfy all the wants
of its people.
• always exists and cannot be eliminated, it can be only
reduced.
 Basic Economics Concepts
2. Choice
• because of scarcity, we cannot fulfill all wants and must
choose from the available alternatives.
• Choice is necessary because resources can be used in lots
of ways to make different goods & services.
• The only way unlimited wants can be reconciled with
limited resources is through choice
• As there are insufficient resources to satisfy all wants,
choices must be made at all levels i.e. individual
consumers, producers, and the government.
• As scarcity is universal, everyone must choose.
SCARCITY  CHOICES
 Basic Economics Concepts
3. Opportunity Cost
the second best alternative forgone after making a choice.
the second best foregone alternative.
Example:
 Government has a piece of vacant land to be used either to
build a hospital, a school, or a sports center (scarcity).
 Because the land is enough for only one project, then
choice must be made from the alternatives available
(choice).
 The government decides to build a hospital, so the school
must be forgone/sacrificed (opportunity cost)
 Basic Economics Concepts

3. Opportunity Cost Cont.

• Every choice involves a sacrifice or trade-off
• Choosing more of one thing means giving up something
else in exchange
• It is a direct result of scarcity and occurs every time
choice is made
• This is a real cost, the cost of an item not in terms of
money, but in terms of the resource, good or service that
had to be given up to obtain that item
 Economic Systems

• All nations face the problem of scarcity

• They have insufficient resources to produce all the goods
& services which their citizens need and want
• An economic system is a system which attempts to solve
the basic economic problem of scarcity.
• They have to address three basic questions:
Basic Economic Problems
(Questions)
 1. What to Produce?

• Means choosing the mix of goods & services to

produce
• Example: Should the economy devote resources to
health and education or defense and police?

2. How to Produce?

• Who will do the production and which method of

production will be used.
• Should the economy use labor-intensive technique
and everyone has a job or use more efficient methods
of production that involve the use of machines even if
this means fewer jobs?
 3. For whom to Produce?

• Means who will consume the goods & services after

they have been produced
• How will we decide who receive the output?
• Should an economy be geared to provide goods &
services to every person as equally as possible or
should those who work hard get more?
• What is the best method of distributing products to
ensure the highest level of wants are met?
Planned (Command) Economic
System (Socialism)
Free (Market) Economic System
(Capitalism)
Mixed Economic System
THANK
YOU