UNIT 1

E-Tutor Presentation
 Core Concepts
What is Economics?
Economics is a social science that studies
how decision-makers allocate limited
resources to satisfy unlimited wants and
needs.
This implies that there is a fundamental
dilemma we must deal with throughout
our lives. This dilemma is usually posed
as the Economic Problem.
 Core Concepts
The Economic Problem - how do we get
the most satisfaction from our limited
resources.
Scarcity & Choice - The fundamental
concepts behind the economic problem is
that scarcity of resources forces people to
make choices among available
alternatives.
 Core Concepts
The decision to have one good or service
over another involves a cost. In economics
this is known as an opportunity cost.
Opportunity cost (not a monetary cost)- the
cost of any choice that you make, is the
value of the best opportunity that you give
up or forgone in order to make that choice.
 Core Concepts

The concept highlights the next best

choice that must be made by
measuring the cost of what is chosen
to the alternative that could be made.
The Production Possibility Boundary
The Production Possibility Boundary
 shows a combination of two goods
 Private sector goods on vertical axis
 Public sector goods on horizontal axis
 separates attainable goods from unattainable
goods
 Point c represents attainable goods but either an
inefficient / under-utilisation of resources
 Point a and b represents attainable goods and the
efficient use of resources
 Point d represent unattainable resources by the
economy
The Production Possibility Boundary
The boundary is negatively slope because in
a fully employed economy, more of one
good can be produced only if resources are
freed up by producing less of the other good
Moving from Point a to b implies that
inorder to gain an additional unit of private
sector goods (Co=> C1) in return you must
be willing to reduce the production of public
sector goods (Go=>G1).
Positive and Normative Economics

• Define positive and normative economics.

• Write your own example of a positive

economic statement.
 Positive Economics
Positive economics are about statements
that are testable i.e. what is, what was,
what will be.

These statements appeal to facts and can

be tested for accuracy by collecting and
analysing the data although it may not be
true.
 Normative Economics
Normative economics are about
statements that express a value judgement
or an opinion about what is desirable,
what ought to be or what should be.
 Questions
Is the following positive statements or normative
statements?
• Rich people are healthier than poor people?
• Growth in Barbados is slower than growth in Bermuda?
 The Caribbean should pursue a free trade agreement with
the USA?
 Income taxes are hurting the poor and should be
eliminated?
 Market Economies
Three pure economy types
A Traditional economic system
primarily on tradition, custom and habit.
A Command economic system
decisions of production are determined by
some central authority.
Free market system
decisions are made by buyers and sellers
acting through unhindered markets
 Market Economies
Mixed economy
contain elements of all 3 types of the
aforementioned economies
In the long run, the aforementioned
economies individually fail to deliver
rising living standards because they use
resources less efficiently.
 Question and Answers

At this time I will open the session

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 Thank You

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