HS3002: Principles of Economics

Learning Objectives

 Define Economics
 Explain the three big questions that
economists seek to answer
 Explain ten principles that define the
economic way of thinking
 Describe how economists go about their
work
Learning Objectives

 Define Economics
 Explain the three big questions that
economists seek to answer
 Explain eight ideas that define the economic
way of thinking
 Describe how economists go about their
work
To Define Economics, we need to
know:

 Society’s wants exceed the resources available to satisfy

them.(Resources = Factors of production = Inputs)

 The economy is so good at delivering what we want

when we want that we only tend to notice when it goes
wrong.

 Scarcity is a fundamental problem faced by all

economies, rich or poor, because not enough resources
– land, labor, capital, and entrepreneurship- are available
to produce all the goods and services that people would
like to consume.
Concepts

 Land: Gifts of nature, such as land, forests, minerals, etc.

 Labor: Human resources (mental and physical)
 Capital: Man-made aids to further production, such as tools,
machinery, factories, that are used in the process of making other
goods and services rather than being consumed for their own
sake.
 Entrepreneur: Who take risks by introducing new products and
new ways of making old products, developing new businesses
and forms of employment
 Goods: Anything from which individuals receive utility or
satisfaction
 Economic Good: A good where the amount available is less than
people would want if it were given away at zero price.
 Free Good: Opposite of economic good
A Definition of Economics

 Economics is the science of choice — the

science that explains the choices that we
make and how those choices change as we
cope with scarcity.
 Economics is the study of how best to
allocate scarce resources among competing
uses.
 Economy based on free-market transactions
is self-organizing.
Learning Objectives

 Define Economics
 Explain the three big questions that
economists seek to answer
 Explain eight ideas that define the economic
way of thinking
 Describe how economists go about their
work
Three Big Economic Questions

 What?
 How?
 For Whom?
What?

 What goods and services are produced and

in what quantities?
– Do we produce houses or vehicles?
How?

 How are goods and services produced?

– Do we use humans or machines to produce the
goods we want?
Who?

 Who consumes the goods and services that are

produced?
–Do we sell our goods to the wealthy, or the non-
wealthy?
Based upon ‘Who gives the answers to these three
questions’: types of economy
Adam Smith Vs. Karl Marx i.e. Free Market Vs.
Centrally governed market (Rich gets richer; poor
gets poorer)
Types of Economy

“It is not from the benevolence of the butcher,

the brewer, or the baker that we expect our
dinner, but from their regard to their own
interest”- Adam Smith, The Wealth of Nations
(1776)
I. Market Economy II. Command Economy
III. Mixed Economy
Learning Objectives

 Define Economics
 Explain the five big questions that
economists seek to answer
 Explain ten principles that define the
economic way of thinking
 Describe how economists go about their
work
Ten Principles of Economics

 The principles give you a sense of what economics

is about.
 The Ten Principles of Economics describe how
economists think about these questions and seek
answers to them.
 The economy is an abstraction that refers to the
sum of all our individual production and consumption
activities.
– The economy is us—the aggregation of all of our supply
and demand decisions.