INTRODUCTION TO

ECONOMICS
GROUP 1

by Joy Angela Huerte

INTRODUCTION TO
ECONOMICS
1.1 THE ECONOMIC 1.3 OPPORTUNITY COST
PROBLEM AND CHOICE

1.2 ECONOMIC THEORY 1.4 ECONOMIC

QUESTIONS AND
ECONOMIC SYSTEMS
1.1

THE ECONOMIC
PROBLEM
LEARNING
OBJECTIVES:
Recognize the economic problem and explain why it makes choice necessary.

Identify productive resources and list examples.

Define goods and services and explain why they are scarce
WHAT IS
ECONOMICS?

WHAT IS
SCARCITY?
Economics is about making
choices. You make economic
choices everyday.
Scarcity is a condition facing all
societies because there are not
enough productive sources to
satisfy people’s unlimited wants
 ECONOMICS
Economics is a social science that studies the
production, distribution, and consumption of goods
and services. Economics focuses on the behaviour
and interactions of economic agents and how
economies work.

WIKIPEDI
A
PRODUCTIVE
RESOURCE
or factors or production, are the inputs used to
produce the goods and services that people
want. Because productive resources are scarce,
goods and services are scarce, too
Three Broad Categories of
Productive Resources
1
HUMAN RESOURCES

2
NATURAL RESOURCES

3
CAPITAL GOODS
 HUMAN
RESOURCES
The first category, human resources, is the
broad category of human efforts, both
physical and mental, used to produce goods
and services.

Labor is the physical and mental effort

used to produce goods and services.
 NATURAL
RESOURCES
are so-called "gifts of nature." They include
land, forests, minerals, oil reserves, bodies
of water, and even animals

Divided into two:

RENEWABLE RESOURCE
EXHAUSTIBLE RESOURCE
 CAPITAL
GOODS
includes all human creations used to
produce goods and services.
GOODS AND SERVICES
GOODS SERVICES
1.2

ECONOMIC THEORY
LEARNING
OBJECTIVES:
Explain the goal of economic theory

Understand the role marginal analysis in making economic choices

Explain how market participants interact

 ECONOMIC THEORY

ECONOMIC THEORY RATIONAL SELF-INTEREST

SIMPLIFY THE PROBLEM MARGINAL ANALYSIS

SIMPLIFYING ASSUMPTIONS REQUIREMENTS OF CHOICE

 MICRO MACRO ECONOMICS
ECONOMICS

the behavior of individuals and firms in making deals with the performance, structure, behavior, and
decisions regarding the allocation of scarce resources decision-making of an economy as a whole
and the interactions among these individuals and
firms.
 MARKET PARTICIPANTS

There are four types of decision makers in the

economy: households, firms, governments and the
rest of the world. Their interaction determines how
an economy’s resources get allocated.
4 TYPES OF PARTICIPANTS

HOUSEHOLDS GOVERNMENT
Households play the leading role in the economy

FIRMS REST OF THE WORLD

 MARKETS
Markets are the means by which
buyers and sellers carry out
exchange. By bringing together the
two sides of exchange, demand and
supply, markets determine price and
quality
THE CIRCULAR-FLOW MODEL
1.3

OPPORTUNITY COST AND

CHOICE
LEARNING
OBJECTIVES:
Define opportunity cost

Follow guidelines for making choices

Analyze the opportunity cost of attending college

 OPPORTUNITY
The value COST
of the best alternative
passed up for the chosen item or
activity
 ESTIMATE
OPPORTUNITY COST
Only the individual decision maker
can select the most attractive
alternative. You, the chooser, seldom
know the actual value of the best
alternative you gave up, because that
alternative is “the road not taken.”
 OPPORTUNITY COST
VARIES
Your opportunity cost depends on
your alternatives
 CHOOSE AMONG
ALTERNATIVES
You now have some idea what opportunity
cost is and how it can vary depending on the
situation. To apply this concept to the specific
economic decision you make, follow these
guidelines: calculate opportunity cost,
consider your time involved, and ignore sunk
costs.
 CALCULATE
OPPORTUNITY COST
Economists assume that your rational
self-interest will lead you to select
the most valued alternative. This
does not mean you must calculate the
value of all possible alternatives
 CONSIDER TIME
.......
INVOLVED
IGNORE SUNK
A cost you have already paid and
COST
cannot recover, regardless of what you
do now
THE OPPORTUNITY
COST OF COLLEGE
Forgone Earnings

Direct Cost of College

Other College Costs

Other-Things-Constant Assumption
1.4

ECONOMIC QUESTIONS & ECONOMIC

SYSTEMS
LEARNING
OBJECTIVES:
Identify questions all economic systems must answer

Describe a pure market economy and identify its problem

Describe a pure command economy and identify its problem

Compare mixed, market, transitional and traditional economies

 What goods and services will be produced?

3
ECONOMI
How will they be produced?

C For whom will they be produced?

QUESTIO
ECONOMIC SYSTEM
An economic system is the set of mechanisms and institutions that resolves the what, how, and for
whom questions. Some standards used to distinguish among economic systems are:

1. Who owns the resources?

2. What decision-making process is used to allocate resources and products?
3. What types of incentives guide economic decision makers?
 PURE MARKET
ECONOMY

An economic system in which private firms

account for all production. Features of this
economic system include the private ownership of
all resources and the coordination of economic
activity based on the prices generated in free,
competitive markets. Any income from selling
resources goes exclusively to resource owners
PROBLEMS WITH PURE MARKET ECONOMIES

Difficulty Enforcing Property Rights

Some People Have Few Resources to Sell

Some Firms Try to Monopolize Markets

No Public Goods

Externalities

Economic Fluctuations
 ECONOMIC
SYSTEMS
Mixed Economy Market Economy Transitional Economy

An economic system that mixes Describe an economic system An economic system in the
central planning with cpmpetitive where market play a relatively process of shifting from central
markets. large role. planning to competitive markets.
ECONOMIC
SYSTEMS
Traditional Economy

An economic system shaped

largely by custom or religion.
Thank you.